PB 234 612
FINANCIAL METHODS FOR SOLID WASTE FACILITIES
Resource Planning Associates
Prepared for
Environmental Protection Agency
1974
DISTRIBUTED BY:
National Technical Information Service
U. S. DEPARTMENT OF COMMERCE
-------
BIBLIOGRAPHIC DATA
SHEET
1. Report No.
EPA/530/SW76C
PB 234 612
4. Title and Subtitle
Financial Methods for Solid Waste Facilities
5- Report Date
1974
6.
7. Author(s)
8. Performing Organization Kept.
No.
9. Performing Organization Name and Address
Resource Planning Associates
44 Brattle Street
Cambridge, Massachusetts
10. Project/Task/Work Unit No.
11. Contract/Grant No.
68-01-0448
12. Sponsoring Organization Name and Address
U.S. Environmental Protection Agency
Office of Solid Waste Management Programs
Washington, D.C. 20460
13. Type of Report & Period
Covered
Final
14.
IS. Supplementary Notes
16. Abstracts
The report catalogues and evaluates a broad range of current financing
alternatives available to municipalities and private enterprise for
the purpose of developing and maintaining solid waste management systems
On the public side tthe report discusses in depth, the various forms of
municipal borrowing along with current revenue financing. The status
of various forms of private financing is discussed ranging from
traditional institutional borrowing through industrial revenue bonds
issuance and leveraged leasing. The report summarizes and evaluates
organizational alternatives for financing and management in addition
to analyzing and making recommendations with respect to financial
mechanisms and assistance programs designed to stimulate capital
inves tment.
17. Key Words and Document Analysis. 17a. Descriptors
17b. Identifiers/Open-Ended Terms
Solid Waste Systems, Municipal borrowing, Current Revenues, Private
Enterprise
17c. COSATI Field/Group
18. Availability Statement
19. Security Class (This
Report)
No. of_Pages
207
UNCLASSIFIED
Security Class (This
'IjNCL
Pace
ASSIFIED
FORM NTIS-33 (REV. 3-72)
USCOMM-OC 14B52-P72
-------
FINANCIAL METHODS
For Solid Waste Facilities
This final report (SW-?Sc) describes work performed
for the Federal solid waste management program under contract No. 68-01-0448
to RESOURCE PLANNING ASSOCIATES
and is reproduced as received from the contractor
U. S. Environmental Protection Agency
1974
-------
This report has been reviewed by the U.S. Environmental Protection
Agency and approved for publication. Approval does not signify that
the contents necessarily reflect the views and policies of the U.S.
Environmental Protection Agency, nor does mention of commercial
products constitute endorsement or recommendation for use by the U.S.
Government.
An environmental protection publication (SW-76C) in the
solid waste management series
-------
TABLE OF CONTENTS
Chapter Page
I. INTRODUCTION 1
Objective and Scope 1
Methodology 2
II. SUMMARY AND CONCLUSIONS 4
III. 'THE SOLID WASTE SYSTEM 17
System Description 18
Activities 19
Methods 20
Equipment 26
Cost 29
System Trends 34
Equipment Investment 35
Patterns
System Directions 38
Capital Investment
Forecast
IV. FINANCIAL MECHANISMS/TRADITIONAL
ALTERNATIVES b4
54
Descriptive Analysis
Municipal Borrowing 56
Financial Institutions 56
ill
-------
Chapter Page
General Obligation
Municipal Bonds 59
Municipal Revenue
Bonds 65
Bank Loans 70
Leasing' 71
Current Revenue Capital
Financing * 72
Private Financing 74
Traditional Mechanisms 74
Industrial Revenue
Bonds 76
Leveraged Leasing 80
Accelerated Depre-
ciation 82
Evaluative Analysis 84
General Obligation Bonds 87
Municipal Revenue Bonds 94
Bank Loans 103
Leasing 108
Current Revenue Capital
Financing
Private Financing
V. ORGANIZATIONAL ALTERNATIVES FOR
FINANCING AND MANAGEMENT 119
Public Authority 121
iv
-------
Chapter Page
Private Corporations 126
Non-Profit Public
Corporations 132
Multi-Community Cooperatives 135
VI. FINANCIAL MECHANISMS/
ASSISTANCE PROGRAMS TO STIMULATE
INVESTMENT 140
Grant Programs 143
New York Environmental
Quality Bond Act of 1972 145
Tennessee Annual Per
Capita Grant 147
Federal Construction
Grants: Water Treatment 149
Hill Burton Grants 151
Evaluation • I53
Credit Banks and Loans 159
Vermont Bond Bank
New York Environmental
Facilities Corporation
Federal National Mortgage
Association
Environmental Finance
Authority I69
Urban Development Bank 172
Farmers' Home Loan Program 174
Evaluation 175
-------
Chapter Page
Interest Subsidies and Loan
Guarantees
Municipal Capital Market
Expansion Act (S.3215) 181
Government National
Mortgage Association 184
Hill Burton Loans and s
Loan Guarantees 186
Evaluation
vi
-------
CASE STUDIES 193
EXPLANATION 195
TABLES
Case Summary Information - General 196
Case Summary by Population 198
Case Summary by Financial Mechanism Used 199
Case Summary by Organizational Form 200
Case Summary by Processing/Disposal System
Type > .201
CASE STUDIES
CITIES
Atlanta, Georgia 202
Braintree, Massachusetts 207
Brookhaven, New York 211
Cheyenne, Wyoming 216
Denver, Colorado 218
Des Moines, Iowa 222
Great Falls, Montana 2^8
Harrisburg, Pennsylvania 23J
Hot Springs, Arkansas 239
Kansas City, Missouri 242
Knoxville, Tennessee 245
Maiden, Massachusetts 249
Memphis, Tennessee 255
vii
-------
Minneapolis, Minnesota 259
Nashville, Tennessee 264
New Orleans, Louisiana . 270
New York City, New York 276
Portland, Oregon 284
St. Louis, Missouri 290
Saugus, Massachusetts 294
Seattle, Washington 299
COUNTIES AND REGIONAL SYSTEMS
Allegheny County and Pittsburg, Pennsylvania 304
Arbuckle Regional Development Authority 309
Baldwin County, Alabama 313
Brevard County, Florida 318
Broward County, Florida 323
DeKalb County, Georiga 327
Orange County, Florida 332
Sacramento County, California 339
San Diego County, California 344
Southeastern Oakland County Incinerator
Authority, Michigan , 346
Ventura County, California 352
Weber,County, Utah 356
viii
-------
STATES
,;
Colorado 359
Idaho 363
Vermont 366
Washington 370
Wyoming 373
-------
I. INTRODUCTION
Objective and Scope
This study was undertaken by Resource Planning
Associates, Inc. under contract to the Environmental
Protection Agency. The purpose of the study was to
assist in the development and evaluation of federal
policies regarding the financing of solid waste facilities
and equipment. The focus of this report is on an
analysis of municipal needs for solid waste capital and
the alternative methods of financing these capital needs.
The research undertaken as part of this report
had several goals. First was to describe the solid
waste system in the context of identifying the
requirements for capital. Second was to fully describe
the operation of all municipal financing techniques
presently used for solid waste projects so that they
could be evaluated relative to particular applications.
This evaluation was based on a set of criteria developed
internally. The final goal was to describe and evaluate
several alternative financial subsidies for stimulating
municipal solid waste investment.
The report contains the major findings of the
research followed by four chapters which describe, analyze
and evaluate capital financing mechanisms. Thirty-eight
case studies were prepared as part of the research effort.
These studies were a major source of data used in the
report.
-1-
-------
Methodology
The approach to the study was divided into three
phases. First, an analysis of the solid waste system
was undertaken to determine its technical components,
the cost of these components, and the cost of result-
ing systems. The results of this activity are pre-
sented in Chapter III. Second, a description and
evaluation of traditional financing mechanisms was
made. In addition, organizational arrangements used
primarily as financing alternatives were examined.
The results of this work are contained in Chapters IV
and V. Third, financial mechanisms that could be
used to stimulate investment were analyzed and eval-
uated. This analysis is contained in Chapter VI.
Chapter III deals specifically with the physical
components of the solid waste system. This section
is primarily descriptive and provides an examination
of the level of dollars needed if a system was to be
upgraded or a new system implemented. Three sources
were used to develop this data:
. Equipment manufacturers and distributors;
. Research reports on various solid waste
activities; and
. Visits to communities.
In determining the present stature of the solid
waste system, it became important to determine what
directions the systems may take in the future in
order to give perspective to future requirements for
capital in solid waste. Technical trends are dis-
cussed and followed by a forecast of capital expen-
ditures for the next decade. Several estimates are
made based on the likelihood of investment in dif-
ferent types of systems.
Chapter IV deals directly with financial mechan-
isms. It is divided in two parts. First is a des-
criptive discussion of traditional municipal financing
alternatives and the way they have been used to pro-
vide capital for solid waste systems. Information
for this area was developed from five sources:
-2-
-------
. Literature research;
. Interviews with finance and economics
professors;
. Interviews with investment and com-
mercial bankers;
. Interviews with municipal financial
advisers and legal counsel; and
. Visits to communities.
The second part of Chapter V contains an evalua-
tion of each traditional mechanism based on a number
of criteria.
Chapter IV covers the institutional arrangements
developed to finance and manage solid waste systems.
It contains a discussion of the alternative organiza-
tions that may be utilized to finance and operate a
solid waste system. Data for this section was dev-
eloped primarily from field visits, including inter-
views with legal counsel, private firms, and city
and staLe officials.
Finally, Chapter VI discusses the applicability
of alternative government subsidy programs to stimulate
solid waste investment. This chapter is divided into
two parts. The first part contains a descriptive
presentation of several subsidy concepts along with
examples. The material used was developed from:
. Literature research;
. Interviews with government agencies;
. Interviews x/ith investment bankers; and
. Interviews with financial officers of
private companies in the solid waste
field.
Following the descriptions is an evaluative
discussion of each subsidy concept based on criteria.
-3-
-------
II. SUMMARY AND CONCLUSIONS
The purpose of this chapter is to present an
abstract of the information contained in the report.
It also reports on conclusions associated with each
chapter and finally makes a recommendation for federal
policy. Naturally, the complete documentation and
evidence for each point carinot be presented. Instead,
the basic points are outlined and the conclusions
presented. Reading this section will provide a gen-
eral knowledge of what the report states and why,
without presenting in detail the evidence for its
conclusions.
-4-
-------
Solid Waste Systems
1. System Description
Prior to the passage of the Solid Waste Act of
1965, an estimated 90 percent of all collected solid
wastes was disposed of in landfills. Approximately
94 percent of these facilities'were open dumps rather
than sanitary landfills. The remainder of the col-
lected wastes were largely incinerated; a very small
fraction was either composted, recycled, or processed
in some other way. With the exception of rolling
stock, capital requirements for solid waste facilities
and equipment at that time were quite modest.
The combined factors of increased public awareness
of environmental quality and the need for resource
recovery and the passage of anti-pollution legislation
throughout all levels of government have given solid
waste management facilities a new priority. Specific-
ally, we can point to four changes in the climate of
solid waste investment:
1. There has been a significant investment
to upgrade open dumps and to install
pollution control equipment on newer
incinerators.
2. States have begun to encourage local
investment to provide solid waste dis-
posal facilities to previously unserved
areas. This investment has been almost
exclusively in sanitary landfills.
3. The high cost of pollution control and
risk of violations has caused a marked
decrease in new incinerator construc-
tion and the closing of many older
facilities.1
4. The need for non-polluting volume reduc-
tion technologies in urban areas has
generated some experimentation with other
forms of processing such as high pres-
sure compaction and pulverization.
•'•See Chapter III, The Solid Waste System, page 36.
-5-
-------
2. Trends
The increased scarcity of land available for
disposal sites, public anger over all types of pol-
lution, and the new enthusiasm for resource conserva-
tion have motivated government and industry to develop
innovative technologies for solid waste disposal.
Significant increases in capital expenditures will be
required for systems other than sanitary landfills.
Municipal investment in new solid waste facilities
has been slow, however, due to their cost and1 technological
uncertainty, and this trend can be expected to continue.
In support of this statement, we offer a fore-
cast of municipal capital expenditures in solid waste
disposal for the next decade based on assumptions
about different types of solid waste systems in the
planning stages. These ten-year cumulative expenditures
estimates range from $1 to $7.5 billion.! For comparison,
the most conservative forecast of aggregate municipal
borrowing for all purposes would yield a cumulative
figure in excess of $220 billion over the next ten years.
Thus, we cannot expect solid waste capital expenditures
for disposal to exceed even one percent of total
municipal capital expenditures.
Conclusions
There is a trend toward investment in more capi-
tal intensive and environmentally acceptable solid
waste systems. The passage of federal and state
regulations has done much to stimulate this trend and
continued enforcement should maintain this stimulus.
Based on observations to date, legislative pressure
seems to be an efficient mechanism for generating
capital investment in solid waste.
See Chapter III, Solid Waste System, page 44.
-6-
-------
Financial Mechanisms/Traditional
Alternatives
Municipalities commonly draw from three basic
sources to obtain capital for facilities and equipment:
borrowing, current revenues, and private enterprise.
Each of these alternatives has particular advantages
and disadvantages that direct its use to specific
situations.
1. Municipal Borrowing
'\mong all borrowing mechanisms available, general
obligation bonds provide the most flexibility to a
community. They can be used to fund any size project,
and the intended capital expenditure program has no
effect on either the ability to use the mechanism or
the cost of using it. Further, several small projects
can easily be grouped together to obtain capital, making
general obligation bonds an ideal mechanism for funding
solid waste systems in small- and medium-sized communit-
ies. On the negative side, voter approval, when re-
quired, may delay the project and increase the costs.
An effective minimum bond size of $500,000 prevents
very small communities from employing municipal bor-
rowing; moreover, this source does not create incen-
tives for initial analysis or subsequent good manage-
ment of a facility.
Municipal revenue bonds provide an important
alternative to general obligation bonds for obtaining
large amounts of long-term capital. Often they are
used to circumvent the constraints associated with
general obligation bonds. They are used for single-
project financing and are used for revenue-producing
services. Because bond principal and interest pay-
ments must come from the net revenue generated by
the funded project, this source of funds necessitates
the preparation of extensive information about the
project's economic and technical viability. However,
these analyses are often performed in a perfunctory
manner. In many instances the revenue bond is struc-
tured in such a way that the project risk is trans-
ferred from the investor to the municipality, thus
-7-
-------
reducing the interest cost. Finally, this mechanism
has been used relatively infrequently to fund solid
waste systems because of the effective minimum size
issue of about $1 million.
Municipal bank loans cannot be considered an
alternative to bond financing except in marginal
situations. Their most typical use in the solid waste
field has been to supply short-term funds for rolling
stock. However, since this is a relatively inexpen-
sive method for acquiring capital, bank loans are
likely to become an important means by which small
communities can finance solid waste processing equip-
ment for terms up to five years.
The final borrowing mechanism potentially avail-
able to a municipality is leasing. Leasing, like a bank
loan, can be used only for short-term capital require-
ments. This feature along with its high cost have
precluded its use by municipalities except for
very short time periods and unusual circumstances.
2. Current Revenue Financing
Historically, the most common method for obtain-
ing capital equipment for use in a solid waste system
has been the "pay-as-you-go" technique. The principal
advantage of this source of funds is its simplicity—
no institutions outside of the municipality are involved,
and no requirements for information, analysis or legal
conformity exist. However, the feasibility of revenue
financing depends on the surplus-making capacity of a
network of sectors in a municipal bureaucracy.
Further, each proposed program finds itself a competitor
with all other projects for funds, and no one program is
likely to receive its full request. In the solid waste
area, current revenue financing has been used mainly for
landfill disposal systems and collection vehicles.
- 8 -
-------
3. The Non-Profit Public Corporation
The non-profit public corporation, like the
authority, enables a municipality to shift its fin-
ance requirements to an organizatin outside the
municipal bureaucracy. It is traditionally 100 per-
cent debt-financed and has no assets other than those
for which it was formed. Unlike the authority, the
non-profit corporation is not confined by geographical
boundaries. Thus, it can offer tax-exempt debt issues
without concern for the municipal debt deiling or
voter approval. However, the non-profit corporation
is removed from the public and is not controlled or
directed by the people it serves or the government
that formed it.
4. The Multi-Community Cooperative
The multi-community cooperative is a regional or-
ganization in which one community provides a single
solid waste system for itself and others. The multi-
community approach enables the centralization of waste
processing and disposal services, thereby expanding
the range of potential technical options that can be
efficiently considered. Small, inefficient and sub-
standard facilities can be eliminated. However, the
managing community must bear the risks of its members'
sometimes erratic support and participation.
5. Conclusions
The most significant value associated with al-
ternative organizational forms lies in their capacity
for use in regional solid waste facilities and equip-
ment. The potential economies of scale from merging
several municipalities often outweigh the political,
legal and administrative problems that can occur.
Individual states and cities are best able to judge
when the regional solution to solid waste problems
is feasible.
-11-
-------
Financial Mechanisms/Assistance
Programs to Stimulate investment
The conclusion to Chapter IV provides a frame of
reference for examining the effects of different
financial stimuli on the process of allocating
investment dollars to solid waste projects. If national
goals are established which call for a greater annual
level of investment in this sector, the government
can provide investment stimuli in many ways. This
chapter deals only with financial mechanisms designed
to stimulate this investment*! fh~ree classes of
assistance programs are examined: grant programs,
credit banks, and interest subsidies.
1. The Giant Program
The grant program is a direct cash transfer pay-
ment from one organization to another providing a
percentage of the funds needed for a given project.
A construction grant program in solid waste, either
at the state or federal level, will be the most
direct method of stimulating investment in capital
intensive systems. Further, a grant program can
stimulate technological innovation and experimenta-
tion; more communities feel less risk-averse if another
agency is absorbing a large fraction of the initial
cost.
But many difficulties are built into grant pro-
grams. Foremost is the artificial encouragement
that is provided for construction of capital-intensive
systems at the expense of other methods. This dis-
advantage is intensified in the field of solid waste
processing, since the most efficient technology has
yet to be determined. Further, the processing of
grant applications leads directly to large administra-
tive expenditures. The administrative structure and
the procedures tends to protract the time from the
initial idea to construction; over time, costs rise
and projects frequently cannot be completed for the
proposed cost.
-12-
-------
2. Credit Banks and Loan Programs
Credit banks provide less of a stimulus to invest-
ment than grant programs because the absolute level of
the subsidy is lower. Credit banks are organizations
that combine the debt issues of many municipalities.
The credit bank offers a municipality a reduced inter-
est and transaction costs on a bond issue. Through the
credit bank, a small- and medium-sized community has
access to capital at less cost than it could achieve
alone. Some credit banks offer such ancillary serv-
ices as project review and system planning, thus making
available services that encourage efficient investment
decisions.
Credit banks in general do not benefit solid
waste any more than any other program unless the
bank specializes in environmental or solid waste
debt issues. Further, the credit bank alone, by
easing the difficulties of acquiring capital, does
not necessarily encourage good analysis and planning
of municipal investments.
3. Interest Subsidies and Loan Guarantees
The interest subsidy program requires that a
municipality negotiate for funds in the capital market
place. It makes a direct cash payment to the munici-
pality and the amount is a function of the loan size
and market interest rate. The subsidy is not tied to
the project, hence, no incentive for project analysis
is created. If the subsidy is program-oriented, as a
subsidy for solid waste loans would be, an incentive
to invest in a more capital-intensive system is created.
However, since the absolute amount of the subsidy pay-
ment is small relative to the capital requirement, it
is unlikely that the existence of the program alone
would stimulate much investment.
-13-
-------
4. Conclusion
Among the three investment stimuli there is little
doubt that the most rapid and efficient method is the
grant. It is not, however, the most desirable because
it stimulates capital intensive solutions in a field
where many other options should be evaluated.
The credit banks offer considerable value to
smaller communities and less populated states in
reducing the cost of capital and providing an access
to broader money markets. It is also possible to com-
bine this financing mechanism with the provision of
technical advice—an especially useful service to
smaller communities.
-14-
-------
Major Findings and Recommendations
An increased awareness of the environmental impact
of offensive solid waste disposal practices has
emphasized the insufficient'level of capital invest-
ment throughout the nation. Essentially, two major
factors have been identified as potentially inhibiting
adequate investment expenditures. The first relates
to the municipal decision-making process that allocates
funds among competing public projects. The second
concerns the capacity of existing financing mechanisms
to supply capital for solid waste system requirements.
This study was commissioned by the Federal Environmental
cProtection Agency to examine the second issue in ord.r
to assist its personnel in "developing and evaluating
Federal policies relating to the financing of solid
waste facilities and equipment."
After much data-gathering and analysis, it became
obvious that the ability to raise capital for solid
waste has not been a constraint. The demand for
capital has not exceeded the capabilities of traditional
mechanisms and sources of capital. Thus the municipal
decision-making process appears to be the principal
obstacle to adequately-funded solid waste systems.
Data developed in this report indicates that to insure
progress towards environmentally sound systems, the
following constraints must be addressed.
. Despite recent public interest in environmental
quality, solid waste disposal continues to
occupy a low position on the list of municipal
investment priorities.
. Most communities have a limited ability to
evaluate technologically complex systems or
to perform sufficient economic analysis. Thus
investment spending is both retarded and
frequently misdirected.
. Furthermore, even economic and technical
advice provided by independent corsuiting
groups has too often been Inadequate.
Frequently the advice merely advocates a
point of view rather than providing a thorough
analysi. of the alternatives most appropriate
to fit community needs.
. Solid waste facility site selection problems,
stemming from limited land availability and
-15-
-------
adverse public reaction, have caused
significant delays in facility planning
and construction. .
Development of regional solid waste systems has
been hindered by the inability of local poli-
tical jurisdictions to cooperate'
The only ways to overcome these constraints lie
at the state and local levels. Hence the role of
the Federal Government should be to encourage
activity in these sectors. It is recommended that
future federal solid waste policies be developed with
this consideration in mind.
. Specifically, government programs which
subsidize investment costs are an inefficient
means of assisting municipalities to
develop acceptable solid waste systems.
Other types of government assistance programs
should require less dollar outlay to achieve
the same results.
We suggest that potential programs for increasing
state and local activity can be found in these areas:
. Federal legislation to establish minimum
solid waste disposal standards, together
with enforcement procedures.
. Benefit-in-kind assistance to state and local
governments, including information exchange,
technical assistance and training,
procedures for technical and economic
evaluation, and identification of financing
alternatives.
-16-
-------
III. THE SOLID WASTE SYSTEM
The objectives of this section are twofold:
first, to set forth the capital requirements for
solid waste facilities and equipment; second, to
discuss how trends in disposal technology affect the
amount of capital needed, and the risk associated
with this type of investment.
The section begins with a description of the
physical components of solid waste systems. Capital
costs for various types of equipment and components
are presented. This is followed by a description
of the capital requirements for four hypothetical
systems.
The second part of this section deals with
trends in solid waste technology, and describes
how these trends may redefine the amount of capital
required for total systems and system components.
Last is a discussion of how these trends may influence
risk investment from an economic and a technological
standpoint.
-------
System Description
Within the total set of alternatives for
handling solid wastes, certain activities may be
necessary or particularly valuable in a given area.
Furthermore/ there are several valid methods for
performing each of these activities, as well as a
variety of appropriate equipment.
As a prerequisite to an examination of
total system costs, it is useful to discuss
how all of these various components inter-relate.
Thus, the solid waste management system will be
discussed in terms of: (1) activities, (2) methods,
and (3) equipment.
-18-
-------
Activities
Solid waste management usually includes the
following activities: storage, collection, hauling,
transfer, processing, and disposal. Discussion in
this study, however, will be limited to those
activities which have significant capital
requirements. These are:
. Collection;
. Transfer;
. Processing;
. Disposal.
The term "collection" will be used to describe
all activities occurring between the point of refuse
pickup (usually some form of storage equipment) and
the transfer station, processing plant, or disposal
site to which refuse is delivered.
The term "transfer" will refer to the activity
of transferring refuse from collection vehicles to
larger-capacity, compacting or non-compacting
hauling vehicles, for the purpose of reducing total
travel time and costs.
The term "processing" will refer to any
treatment designed (1) to reduce the volume of solid
waste, or (2) to recover resources. The latter
procedure can, in turn, be subdivided into
".materials recovery" and "energy recovery."
Finally, the term "disposal" will refer only
to the ultimate disposition of solid wastes. Federal
law currently limits disposal to sites on land.
-19-
-------
Methods
For each of the activities listed above, there
are several possible methods for handling solid wastes,
The following is a representative list:
Collection
1. Manual.
Nearly all residential, commercial, and
industrial solid wastes are collected
by one- to four-man crews operating
some type of compacting truck.
2. Pneumatic.
In this experimental system, refuse is fed
directly into pneumatic tubes that lead
to a centralized storage facility. One
system is currently in use in Disneyworld.
3. Liquid.
This system is still in the proposal
stage. Refuse is to be pulverized
and fed into a sewer system in slurry
form. Some residential garbage is
currently collected in this manner, vie
home garbage disposal units.
Transfer
1. Direct-dump, non-compacting.
Collection trucks dump refuse directly
into open-top, non-compacting transfer
trailers, or onto a temporary storage
area. These trailers usually have about
three times the cubic-yard capacity of
standard collection trucks.
2. Compaction.
Collection trucks unload refuse into
large, stationary compactors which then
reduce it in volume. Refuse is next
forced into closed transfer trailers.
-20-
-------
Processing
1. Incineration.
Refuse is burned in excess oxygen, to
achieve 85-95 percent volume reduction
and 60-65 percent weight reduction.
Approximately 8 percent of all
municipal refuse collected in the
United States is processed in incinerators.
2. Shredding.
Solid wastes are ground up or pulverized
in order to achieve greater densities in
landfills. Shredding may also be used
to prepare wastes for the separation
process.
3. Baling.
Wastes undergo high-pressure compaction,
to achieve 90-95 percent volume reduction
and a doubling of the density in landfills.
Three such facilities are currently
operating in the United States.
4. Separation.
Refuse is separated mechanically and
basic materials are reclaimed. One
demonstration system built by
Black Clawson is currently in operation.
5. Composting.
This is the biological degradation of
the organic component in solid wastes
by grinding, conditioning and aerobic
decomposition into a sanitary, humus-like
material. As of 1971, two plants were
operating in the United States.
6. Pyrolysis.
In this process, chemical breakdown of
organic material results in 95 percent
volume reduction. Breakdown is achieved
by heating wastes to extremely high
temperatures in an oxygen-deficient at-
mosphere. Two systems are soon to be
built under EPA demonstration grants.
-21-
-------
Disposal
1. Landfilling.
Solid wastes are dumped at a particular
site. In "sanitary landfills", refuse
is compacted and covered daily with a
layer of earth by large earth-moving
vehicles. All current solid waste
systems must eventually use landfills
to dispose of some portion of collected
wastes.
2. Ocean Dumping.
The direct dumping of solid wastes into
the ocean is prohibited by federal law.
In this first section, only those methods whose
technological and economic feasibility has been proven
will be presented. Discussion of newer technologies
will be deferred to a later section.
In Figure III-l, one can see how the four activi-
ties may be combined according to the type of system in
use. Both the collection and disposal components
shown in this chart are essential to any solid waste
system. (The exception might be a system in which
100 percent recycling is achieved.) However, one notes
from the flow lines that the inclusion of transfer and/or
processing operations in any given system is optional.
Furthermore, there are a variety of ways to accomplish
each activity. And finally, each procedure can be
performed by several different pieces of equipment.
-22-
-------
Figure III-l
SOLID WASTE SYSTEM COMPONENTS
Sources of
Solid Waste
Disposal
-------
With all of these available options, there will
be a substantial difference between total capital
costs for the least complex and the most complex
systems. The selection of any given set of alternatives
is based on a trade-off among operating costs, capital
costs, land availability, conservation goals, and
public acceptance. Following is an example of the
interplay between these variables.
. A transfer station in a given system is
usually needed because collection vehicles
take too long to make round trips to the
disposal site. The decision to operate with-
out a transfer station is, in effect, a
decision to invest in more collection trucks
than would otherwise be needed. This may
result in substantial increased in operating
costs. A decision to invest in a transfer
station also involves additional costs. In
oruer to be economically effective, the station
must be located near the sources of solid
waste, possibly in close proximity to residential
neighborhoods. This inevitably causes a community
uproar. To eliminate neighborhood antagonism,
considerable attention must be given to
landscaping, truck routing, and building
design. All this translates into extra dollars.
In fact, many municipalities have been unable
to purchase land for transfer stations at any
price.
In general, system capital and operating costs are
higher in urban areas than in rural areas. This is true
for absolute cost(s) and for per-ton of capacity (or per-
person) costs. In rural settings, several factors account
for the relatively low capital investment requirement.
The most important is the abundance of relatively
inexpensive land. In rural areas, the use of sanitary
landfills is obviously the most economical disposal
choice. Consequently, one finds an almost exclusive
use of solid waste management systems incorporating
collection and direct delivery to landfills. Since this
arrangement calls for the least amount of capital
equipment of all refuse-handling alternatives, it
obviously requires the minimum investment per ton of
capacity. A case in point is rural Baldwin County,
Alabama, which contracts for its solid waste disposal
with a local earth moving firm. This firm operates a
-24-
-------
sanitary landfill in which it disposes of all solid
waste for a fixed fee of $1.42 per ton, exclusive
of property lease payments and utilities.
In addition to the characteristically lower costs
of rural disposal, the abundance of land in rural
areas often means there is little public or legisla-
tive pressure to upgrade disposal operations. In
some areas, this laissez-faire attitude often means
there is no attempt to prohibit open dumping.
This was found to be particularly true in tne
plain states and rocky mountain states where muca
of the land is geologically well-suited for landfills
and wnen population densities are particularly low.1
One finds almost the complete reverse in urban
areas: land is scarce and very expensive; public
concern is high; and local legislation has imposed
stringent restrictions on solid waste operations.
Under these conditions, there is a strong impetus
to use equipment that can improve operating effic-
iency, and reduce the volume of solid waste going
into the ground. The use of transfer stations and
large processing plants (e.g., incinerators, balers,
shredders) is considerably more commonplace, and
solid waste investment per ton of capacity is higher.
In Pittsburgh, Pennsylvania, an abandoned strip mine
is being landfilled under private contract for a
fee of $7.20 per ton (compared to $1.42 in Alabama).
Where incineration is found necessary total per ton
costs can go as high as $20 per ton, such as is the
case in Braintree, Mass, and investment per ton of
capacity can be in the $15,000 to $20,000 range.
1This information was developed in accordance with the
methodology described on Page 41.
-25-
-------
Equipment
While dealing conceptually with combinations •
of activities and methods that may be incorporated
into a solid waste system, the decision-maker must
also determine what equipment is needed for each
combination, and its cost. In Figure III-2, there
is a catalog of the most commonly used solid waste
equipment. List prices were obtained from equipment
manufacturers.
The table reveals a wide range of prices for
much of the equipment. These prices have increased
as specifications have become more stringent. In
recent years particularly, buyers have demanded
better performance and more sophisticated technology.
Prices have also been affected by steadily rising
construction costs. Perhaps the most striking contri-
bution of these two factors is illustrated in Figure
III-3, which shows the increase in the cost of incin-
erator installations.
Source: 1. Period '48-'68, American Society of Civil Engineers, Committee
on Sanitary Engineering Research. Unpublished data.
2. Resources Planning Associates. Unpublished data.
-26-
-------
fie; u re 111-2
soi.io WA:,TU LQUIPMCMT COSTS
I
N)
ACTIVITY METHOD
COLLECTION
Rear Loading
Front i/oading
Side Loading
TRANSFER
Direct Dump,
Non-Compacting
Compaction
j
PROCESSING
Baling
Shredding
Incineration
DISPOSAL
Sanitary
Landfill
EQUIPMENT
Body
Chassis
Body & Chassis
Body & Chassis
Open Trailer
Tractor
Scale
Front End Loader
Building
Trailer
Tractor
Scale
Front End Loader
Building
Plant (including
conveyors , front-
end loader ( bldg.)
Plant (including
shredder, 2 con-
veyor a, bldg.)
Entire Plant .
(w/o energy recov.)
(w/ energy recpv.)
-i
*».
Building ^
Crawler Dozer
Scraper
wheel Loader
Scales
CAPACITY
16-30 yd.3
25-35 yd.3
10 yd. 3
C5 yd.3
—
~
65-75 yd.3
--
—
--
--
470 ton/24 hr.*
1100 ton/24 hr.*
1550 ton/24 hr.*
• 85 ton/24 hr.**
260 ton/24 hr.**
700 ton/24 hr.**
.
12.5-600 •
240-1600
tons per
day
--
20-50,000 IDS.
24 yd. 3
4.5 yd.3
APPROX.
CAPITAL COST
S 7K-12.5K
S12K-22K
S24K-34K
S15K
S 9K
S18K-20K
$10K-25K
S28K-40K
$100K-1.5HM
$18K-24K
518K-20K
510X-25X
S28K-40K
IIOOK-L.SMM
$532K
$1.075HH
J1.690MM
$100X-L50R
I300K-400X
$800K
$75X-$6.2HN
$2,7SH-23MN
$5X-20R
$45K-70K
$95K-105K
$58K-65K
;A5X-25X
•APPROX.
USEFUL LIFE
(years)
5-8
5-8
5-8
5-8
.
10
10
-
10
-
-
-
-
20-30
20-30
20-30
20
20
20
20-25
20-25
-
5-1C
5-10
5-10
* 85 percent utilization
** 70 percent, utilization (1 shift for maintenance)
-------
Figure III-3
INCINERATOR CAPITAL COST PER TON OF CAPACITY
Q
U
b,
O
o
EI
u
UJ
CS
O
o
o
CJ
o
"—I
u
Ci
EH
in
6
• u
EH
Z
cu
J
"?000)
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
1 1 ! 1 1 1 \ J 1 ! 1 1 \ h-
48 50 52 54 56 58 60 62 64 66 68 70 72 74
\fear Completed
Source: 1. Period '48-'63 ASCE, Committee on Sanitary
Engineering Research
2. RPA Field Research
-------
Costs
i I
Figures III-4 through til*? show the differences
in total system costs and in arthual costs for altern-
ative solid waste systems. Foot hypothetical cases
are presented with costs. *'•
Case 1: Population 50,000.
Solid waste disposal system(s)
. Simple sanitary landfill
Case 2: Population 100,000.
Solid waste disposal system(s)
. Simple sanitary landfill
. Shredding and landfill
. Incineration and landfill
Case 3: Population 250,000.
Solid waste disposal system(s)
. Simple sanitary landfill
. Shredding and landfill
. Incineration and landfill
Case 4: Population 500,000.
Solid waste disposal system(s)
. Simple sanitary landfill
. Shredding and landfill
. Incineration and landfill
Calculations were based on the figures pre-
sented in Figure III-2. These figures are extra-
polations based on field research and the assump-
tions listed in Figure III-ll in the appendix.
In Figures III-4 through III-7, only the land-
filling option is computed for Case 1. This is
because a community of 50,000 people would rarely
consider any other investment alternatives. The
size of the population and the likelihood that
adequate landfill sites could be located are tne
determining factors. In fact, areas in this popu-
lation size category that have abundant unused land
are inclined to use open dumps. In this way,
capital requirements can be reduced by $115,500 -
$142,500, or one-third of total system costs.
(See Figure III-4.)
-29-
-------
Figure IU-4
HYPOTHETICAL SOLID WASTE SYSTEM
Case 1
POPULATION 50,000
SOLID WASTE GENERATION 100 Tons/Day
Facilities & Initial , Annual
Equipment Number Capital Cost: Capital Cost
OPTION 1; Simple Sanitary Landfill (No Processing)
COLLECTION
Trucks 10 $250,000 $50,000
DISPOSAL
i Landfill (100 acres)
g Site Development 15,000-30,000 1,500-3,000
i Building 1 8,000-10,000 800-1,000
Scales 1 12,500 1,250
Crawler/Dozer 1 30,000-40,000 3,000-4,000
Scraper (15 cu.yd.) 1 50,000 5,000
TOTAL INVESTMENT $365,500-392,500
TOTAL ANNUAL COST $61,550-64,250
TOTAL INVESTMENT PER TON DAILY CAPACITY $3,655-3,925
Excludes cost of land.
^Annual Cost = Capital cost f useful life
-------
Figure III-9
HYPOTHETICAL lOLtD MkSTB BY
Case t
POPULATION 100.004
SOLID man GENERATION 200 Tons/Day
Facilities t
Equipment
OPTION li
COLLECTION
Trucks
DISPOSAL
Landfill
Site Development
Building
scales
Crawler /Doter
Loader
Scraper (25 cu.yd.)
•umber
Staple Sanitary
ai
(200 acres)
1
1
1
Initial ,
Capital Cost*
Undfill (No Processing)
ISIS, 000
ao, 000-40,000
10,000-15,000
19.000
(0,000
90,000
100.000
Annual
Capital Cost2
' 1103,000
a, 000-4, ooo
1. 000-1. 500
1,500
C.OOO
5,000
10.000
TOTAL INVESTMENT $710.000-105,000
TOTAL ANNUAL COST S110.SOO-131,JOO
TOTAL INVESTMENT PER TON DAILY CAP AC ITT $3,*00-4,02>
OPTION 2i Shredding/Landfill
COLLECTTON
Trucks
PROCESSING
Shredder
TRANSFER
Tractor-Trailer Sets
DISPOSAL
Site Development
Building
Crawler/Dozer
21 1925,000
100.000-400,000
2 70.000
20,000-40,000
10.000-19,000
2 100.000
S10S.OOO
19,000-20.000
14,000
2,000-4,000
1,000-1.500
10.000
TOTAL INVESTMENT . $1.029.000-1,190.000
TOTAL ANNUAL COST $147.000-154,500
TOTAL INVESTMENT PER TON DAILY CAPACITY $9,129-9,790
OPTION 1» Incineration/Landfill
COLLECTION
Trucks 21 $925.000 $105,000
PROCESSING
Incinerator 2,790,000 137,500
TRANSFER
Dump Truck 1 19,000-20,000 1.000-4.000
DISPOSAL
Site Development 10,000 1,000
Crawler/Dozer lO.OOO«i*tt.aoO. • 3.OOP~4,OOP.
TOTAL INVESTMENT $1.110,000-3.149,000
TOTAL ANNUAL COST • $249,500-291,900
TOTAL INVESTMENT PER TON DAILY CAPACITY $16,650-16.729
Excludes cost of land.
2Annual Cost - Capital cost t useful life
-31-
-------
Hguro 11 l-o
HYPOTHETICAL SOLID HASTE SYSTEM
Can I
POPULATION ISO, 000
SOLID MSTE GENERATION }00 Tona/Day
Pacllltiaa »
Equipment
Nwbar
OPTION It Simla Sanitary
COLLECTION
Trucka
TRANSFER
Site Development
Building
Scale*
wheel Loadar
Tractor-Trailer Set*
DISPOSAL
Landfill
lite Development
Building
Scalaa
Cravlar/Dosar
Hhael/Lnadvr
Scraper (25 en. yd.)
TOTAL INVESTMENT
TOTAL ANNUAL COST
TOTA * INVESTMENT PER
52
1
1
1
(-9
(500 acre*)
1
1
2
2
1
(2
TON DAILY CAPACITY
Initial ,
Capital Coat1
Landfill (NO Procaialna
1
(1,300,000
•
20,000
250,000
15,000
30.000
2(0,000-315,000
30,000-50,000
50.000
30,000
15,000 .
120,000
120,000
100.000
,310,000-2,365,000
(4,620-4,730
Annual ,
Capital Coat*
1
• (1(0,000
2,000
25.000
1.500
3.000
56,000-63,000
3,000-5,000
5,000
3,000
1.500
. 12.000
12.000
10.000
(3(9,000-390,000
OPTION 2i Shredding/landfill
COLLECTION
Trucka
PROCESSING
Shredder
TRANSFER
Tractor-Trailer Sata
DISPOSAL
Sit* Developnent
Building
Crawlar/Doser
TOTAL INVESTMENT
TOTAL ANNnAL COST
TOTAL INVESTMENT PER
COLLECTION
Truck*
PROCESSING
Incinerator
TRANSFER
DUBP Truck*
DISPOSAL
Sit* Development
Crawlar/Doiar
52
6-7
(1.300,000
700,000-800,000
210,000-243,000
30,000-30.000
1 30.000
3 • 1(0.000
(2.450,000-2.605,000
TON DAILY CAPACITY (4,900-3,210
OPTION 3i Incineration/Landfill
52
2
1
(1.300.000
7,200.000
40,000
•
10,000
30.000-40.000
(260,000
35.000-40,000
42,000-49,000
3,000-5.000
3,000
19.000
(361,000-375,000
*
(2(0.000
360,000
8,000
1,000
3.000-4,000
TOTAL INVESTMENT
TOTAL ANNUAL COST
TOTAL INVESTMENT PER TOR DAILV CAPACITY
(8,580,000-1,590,000
(17,1(0-17,1(0
(632,000-633,000
1Exclude* co*t of land.
^Annual Coat • Capital coat » uiefui Ufa
-32-
-------
POPULATION
SOLID mm OJBMWM<
Facilities t
Equipment Barter
OPTION it 'B'™^1« 6jtait*n
COLLECTION
Trucks 104
TRANSFER
Site Dev.
Bunding 1
Scales a
Wheel Loader 3
Tractor-Trailer Beits 17-16
DISPOSAL
Landfill (1,000 acres)
Sile Development
Bui Iding 1
Sea lea 1
Cravle. /Dozer 9
Wheel/Loader 2
Scraper (25 cu.yd.) 3
TOTAL INVESTMENT
TOT-VL ANNUAL COST
960.000
9N 1,000 «ena/D>r
rnlclol
CaoiCnl Coat1
r tsnYlPA'l (Eo PtoeaMlnq)
e2,««oicoo
CO ; 000
SCO, 000
SOrOOO
60,000
303.COO-430.000
30.000-79,000
30, COO
19,000
100.000
140,000
200.000
64,494,000-4,314,000
Annual
Capital Cost'
1920,800
5,000
90.000
3,000
6,000
119.000-126,000
5,000-7, 00
3,000
1.900
18,000
14.000
20,000
1765,300-774,800
TOTAL INVESTMENT PER TOM CAILT CAPACITY $4. 494-4,914
OPTION 2i flhreddlnrj'Landflll
COLLECTION
Trucks 104
PROCESSING
Shredder
TOAHSFEH
Tractor-Trailer Sets 1S-13
DTl.r'OSAL
bite Povolopnent
Build.-iq 1
crawloi/Dozer 9
TOTAL INVESTMENT
TOTAL AKKOU COST
T—V INVESTMENT PER TOM DAILY CUftCIYT
OPTION 3i Seslv
COLLECTION
Trucks 2.04
PROCESSING .
Incinerator
T>-ftW«TER
Dump Trucks • 0
DISPOSAL
Site Development
Crawl or/Dozer 2
(2,604,000
1.100.COO-1.900.000
420,000-499,000
50.030-79,000
30C000
300.000
$4 , 904 . GOO-4 , 964 , 000
•
14. 904-4, 664
nntlon/Lar.a£ill
•2,604,000
19,000,000
GO. 000
...i.U'OO
to.ua-uj.ooo
8S20.800
9S. 000-73. 000
64.000-91.000
5.000-7,503
3,000
30.000
$697.800-727,300
SS20.BOO
VSO, 000
1C, 000
2,000
C, 003-d, OOJ
TOTAL INVESTKEK7
TOTAL ANNUAL COST
TOTAL INVESTKBN? PER TOII CAIZ.3 CAP AC IF
,i*j.l«'s t-oit of land.
>u.n Cost • Capital coa>. S useful Life
817 ,7M. GOO»1V,7B4,000
ClV.VtJ-1/. VU4
$i , .154 ,000-1 , 2i/u , BOO
-33-
-------
System Trends
In the past seven or eight years, public and
legislative concern about the "solid waste problem"
has increased dramatically. As environmental legis-
lation is passed, setting minimum operating standards,
capital and operating costs of many disposal systems
increase significantly. Some installations have be-
come technically or economically infeasible.
For example: the Federal Clean Air Act of
1967 set particulate emission standards which are
being violated by 70% of the municipal refuse incin-
erators in the country. This act also prohibited
the open burning of solid wastes-, a common method
of disposal in the country at that time.
The Federal Water Pollution Control Act of
1970 made it necessary for a majority of munici-
palities to install (or upgrade) quench-water treat-
ment systems in their incinerators, or to close them
down. This bill also focused considerable atten-
tion on the leachate problems that are endemic to
most landfilling operations. The gravity of the
leachate problem is still being evaluated.
Finally, passage of the Solid Waste Disposal
Act of 1965 and its amended version, the Resource
Recovery Act of 1970, encouraged most states to
pass legislation specifically directed at solid
waste operations. Forty-seven states have already
passed solid waste legislation. In a majority of
the states, open dumping is now illegal.
-34-
-------
.'Equipment Investment Patterns
There have been two outstanding results of
this legislation: (1) some 16,000 out of a total
estimated 17,500 municipal landfill sites have been
categorized as substandard; and (2) an estimated
70 percent of some 250 incinerators are operating
in violation of air pollution standards.2 To
meet federal and state standards, many areas have
had to invest substantial sums of money in new
equipment, additional site development, leachate
and methane control devices at landfills, and electro-
static precipitators or wet scrubbers for incinera-
tors. These investments would probably not have
been made had not legislation and public concern
forced compliance with minimum operating standards.
Some areas have chosen to replace existing
facilities with entirely different systems. An
EPA survey3 indicated that only 193 incinerators
were still operational in May 1972 as compared to
250 in 1967. That this trend is continuing is
supported by our own research: only 104 refuse
incinerators of over 50-ton-per-day capacity were
operational in February 1973*
Solid waste legislation has also been a factor
in determining which types of solid waste disposal
systems are being funded. As the movement toward
stricter standards continues to grown, communities
ha"P an incentive to invest in solid waste treat-
ment systems which involve the least amount of
The American Society of Civil Engineers defines a sanitary
landfill as "a. method of disposing of refuse on land without
creating nuisances or hazards to public health or safety,
utilizing the principles of engineering to confine the
refuse to the smallest practical area, to reduce it to the"
smallest practical volume, and to cover it with a layer of
earth at the conclusion o'f each day's operation, or at such
more frequent intervals as may be necessary." (ASCE manuals
of engineering practice no. 39; sanitary landfill. Mew York,
1959. p.l.)
These are 1969 figures, from Arthur D. Little, Inc. Systems
study of air pollution from municipal incineration. 3 v. Cam-
bridge, Mass., 1970. 920 p. (Distributed by National Tech-
nical Information Service, Springfield, Va., as PB 192 378,
PB 192 379, and PB 192 380.)
Achinger, W. C., and R. L. Baker. Environmental assessment
of municipal-scale incinerators. Environmental Protection
Publication SW-111. [Cincinnati], U.S. Environmental Pro-
tection Agency, 1973. 31 p. [Open-file report, restricted
distribution.]
Telephone interviews with solid waste management offices
in all fifty states.
-35-
-------
technical risk. Uncertainty about the technical
feasibility and the cost of sophisticated treatment
methods for air and water pollution control has
definitely reduced new investment in incinerators.
Since 1967, the number of new municipal refuse incin-
erators built annually has declined to 4 per year,
in comparison to 13 per year for the 1945-67 period.*
As a result of Mission 5000, various state pro-
grams, and other public relations efforts, some
3,155 dumps have been closed or converted to sanitary
landfills since 1967.2
To evaluate these investment patterns correctly,
it is important to remember the characteristics of
rural versus urban solid waste systems. Before the
passage of the three federal anti-pollution acts,
most rural areas had no solid waste services at all,
or were operating open dumps. Since that time,
many of these areas have upgraded their operations
and Have invested capital in solid waste, often for
the first time. As mentioned earlier, this capital
has been used almost exclusively for collection
trucks and sanitary landfill equipment.
On the other hand, even though some urban
cities of over 100,000 people have recently replaced
incinerators or composting plants with sanitary
landfills, a considerably larger number are seriously
in need of technologies for effective solid waste
volume-reduction. This need increases as land for
fill sites becomes more expensive, and more diffi-
cult to find or to purchase. Even where landfilling
is now an option in urban areas, refuse must-
-------
Processing and/or disposal methods developed
to meet this pressing urban need will have to satisfy
a number of criteria. First, they must meet air,
water, and noise pollution standards that have
already been set or that may be set in the foreseeable
future. Systems will have to achieve significant
volume reduction ratios; (e.g., 85-90 percent); they
will have to be environmentally acceptable; and they
will have to achieve these goals at a cost that can
ue handled by most communities.
At the present time, there are some system com-
ponents in operation that achieve volume reduction
with some degree of efficiency. These include con-
ventional incinerators with or without steam recovery;
refuse balers; composting plants; and refuse shredders.
Two factors have limited the impact of existing
volume-reduction installations, however. First,
the total number of installations now in operation is
extremely small relative to the need. More importantly,
these particular technologies have not satisfied all
federal and state standards. For example, air and
water pollution is still a serious problem with refuse
incinerators. In addition, the incidence of resource
recovery at existing incinerator installations has
been minimal.
Shredding and baling have the potential of
reducing the volume of solid wastes by a factor of
1.5 and 2 respectively.1 To achieve resource recovery
of substantial volume reduction, shredding would always
need to be followed by additional processing. Baling
makes additional processing impossible because of the
extremely high density of the refuse bales. Composting
plants have been constructed in eighteen cities since
1950. All but two have since been closed for economic
reasons or because of complaints over objectionable
odors.
•'•These reduction factors compare the density of shredded
or baled refuse with that of unprocessed refuse in the
landfill.
-37-
-------
System Directions
There is still an enormous gap between the
solid waste disposal needs of urban communities and
the capabilities of existing systems. In response
to these needs, the federal government, industry
associations, and private companies have launched
research and development programs. The following
is a partial list of 'the systems currently being
developed, tested, or operated in pilot plants.
. Pyrolysis.
. High-temperature incineration.
. Mechanical automated separation.
. Bio-oxidation.
. Fluidized bed incineration.
. Combinations of the above.
These new systems share an important charac-
teristic: they all involve expenditure of large
amounts of capital per ton capacity. Figure III-8
indicates the approximate capital requirements
that are likely to be associated with these systems.
One can see from the figures on investment per ton
of daily capacity that the incremental increase over
sanitary landfilling is substantial. (See Figures
III-4 through III-7.)
In many areas, this large incremental increase
in capital investment requirements combined with the
broader national goal of resource conservation
may mean that these systems will have to achieve some
form of resource recovery. Thus revenues from the
sale of these recovered resources can be used to
offset the higher per ton owning and operating costs.
To date, efforts at resource recovery have been
minimal - chiefly limited to steam recovery, magnetic
separation of ferrous metals, and production of
compost.
Another salient characteristic of these systems
is that all are presently classified as "new technology
-38-
-------
systems." In other words, the technological as well
as the economic risk involved in these methods has not
yet been determined with any degree of certainty.
-39-
-------
Figure IllrS
Capital Costs of Solid Waste Developmental Systems*
Investment per ton
of daily capacity +
Pyrolysis (Monsanto Enviro-Chem) $15,000
High Temperature Incineration
(Melt-zit, American Thermogen) $15,000 - $12,500
Mechanical Automated Separation
(Black Clawson) $15,000
Bio-oxidation
(Fed\ ay - Strobel and Rongved) $10,000
Fluidized Bed Incineration
(CPU-400) $10,000-$11,000
* Based exclusively on manufacturers' estimates
+ Exclusive of land and site development costs
-40-
-------
Capital Investment Forecast
In light of the previously mentioned trends towards
more capital intensive solid waste systems, an approxi-
mate projection of the aggregate capital requirements
for the next ten years was made. The projections'cover
only processing and disposal equipment.
Because of a lack of existing data on which to
base future expenditures, RPA had to develop its own
case material. The methodology for data collection
included:
. telephone discussions with regional EPA
officials and solid waste directors and/
or planners in all fifty states;
. personal interviews with solid waste
directors and/or planners in thirteen
states; and,
. examination of reports which surveyed
numbers of existing facilities.
During the discussions with state officials,
each was asked to provide an estimate of municipal
investment in solid waste for the next ten years. In
only fifteen states was this information available.
For the remaining states it became necessary to re-
quest certain population information, which when combined
with per capita capital investment figures, could be
translated into solid waste investment requirements.
This calculation was performed by separating state
population into the following four groups:
Group 1 - Population served by an inadequate
landfill.
Group 2 - Population served by an inadequate
capital intensive system.
Group 3 - Population served by an adequate
sanitary landfill.
Group 4 - Population served by an adequate
capital intensive system.
-41-
-------
Investment requirements could then be calculated
by multiplying each population category by per capita
capital costs developed in Figures III-3 through III-8.
To project the base level investment into the
future three investment levels were developed:
Level I - Assumes that investment will be
made in accordance with current
state plans for Groups 1 and 2
and no additional investment will
be made for Groups 3 and 4. This
forecast was based on state esti-
mates, landfill and capital in-
tensive system costs from Figures
III-3 to III-8 and state popula-
tion estimates.
Level II - Assumes that Group 1 will be
served by a processing and disposal
systems such as incineration
rather than a landfill. The
remaining groups invest as in
Level I. This forecast was ob-
tained by multiplying the
Group 1 population by the per
capita investment required.1
Level III - Assumes that investment will be
identical to Level II except that
Group 3 will be served by pro-
cessing and disposal systems such
as incineration rather than
landfills. This forecast was
obtained by multiplying Group 3
population by the per capita
investment required.
1For the purpose of the forecast, the cost of $15,000
per ton of capacity was used increasing over the ten-
year period to $20,000 per ton of capacity. These
figures were based on processing/disposal costs in
Figure Ili-7, page 33 and Figure III-3, page 28
was used to estimate the ten-year cost trend.
2
The same" approach as footnote 1 except that the $20,000
per ton of capacity cost is used because the investment
is estimated to occur in the later part of the ten-year
period.
-42-
-------
Figure III-9 presents the national investment
required for the ten-year period for each combination
of systems investment. Figure 111-10 presents this
d&ta on a stat.e-by-state basis.
It should be noted that these projections do not
include expected investment in rolling stock/ which
at present levels substantially exceeds investment
in processing and disposal equipment. It is estimated
that some 90,000 collection trucks were in service
in 1971 of which about 48,000 performed residential
collection services. In order to maintain this level
of service, the fleet replacement cost over the ten-
year period was roughly 5 billion dollars.
Based on data supplied by the Environmental Protection
Agency, Office of Solid Waste Management Programs and
Applied Management Sciences, Silver Spring, Maryland.
-43-
-------
Figure III-9
CAPITAL INVESTMENT FORECAST FOR
PROCESSING AND DISPOSAL EQUIPMENT
1973-1983 .
NATIONAL SUMMARY
Investment Level 1973-1983 Expenditure
($000)
Level I:
Group 1 257,960
Group 2 714,500
Group 3 0
Group 4 0_
Total Level I 972,460
Level II:
Group 1 2,745,050
Group 2 714,500
Group 3 0
Group 4 0
Total Level II 3,459,550
Level III:
Group 1 2,745,050
Group 2 714,500
Group 3 3,729,400
Group 4 0
Total Level III 7,188,950
-44-
-------
Figure 111-10
CAPITAL INVESTMENT FORECAST FOR.
PROCESSING AND DISPOSAL SYSTEMS
1973-1983
STATE SUMMARY
*
Alabama
Group 1
2
3
4
Total
Alaska
Group 1
3
4
Total
Arttona
Group 1
2
3
4
Total
Arkansas
Group 1
2
3
4
Total *
California
Group 1
2
3
4
Total
Colorado
Group 1
2
3
4
Total
Connecticut
Group 1
2
3
4
Total
Population
(000)
500
2,950
3,450
150
150
300
400
1,350
1,750
1,500
450
1,950
5,000
15,000
20,000
1,000
1,200
2,200
3,000
3,000
It
Investment Level ($000) "
I
1,300
1,300
400
4,500
4,900
680
680
3,900
3,900
10,000
10,000
5,000
5,000
200,000
200,000
II
17,500
17,500
5,250
4,500
9,750
14.000
14,000
52,500
52,500
175,000
175,000
35,000
35,000
20-0,000
200,000
III
1
ll
17,500 il
118,000 ,.
: 35, 500
5,250
4,500
9.750
I1
14,000
54,000
68,000
52,500 !'
18.000 j
70,500
i
i
175,000 t
600,000 i
775.000
;
35,000
48,000 !
83,000
1
!
200.000
200,000
!
-------
Figure I11-10 (Continued)
Delaware
Group 1
2
3
4
Total
Washington, O. C.
Group 1
2
3
4
Total
Florida
Group 1
2
3
4
Total
Georgia
Group 1
2
3
4
Total
Hawaii
Group 1
2
3
4
Total
Idaho
Group 1
2
3
4
Total
Illinois
Group 1
2
3
4
Total
Indiana
Group 1
2
3
4
Total
Population
(000)
540
340
1.000
1,000
3,000
2,925
875
6,800
4,500
500
5,000
645
105
7SO
450
250
700
5,000
3,400
1,350
1.350
11,100
2,500
2,680
20
5,200
Investment Level ($000) f
X
9,000
9,000
26,000
26,000
75,000
75,OQO
10,000
20,000
30,000
•»
-
1,100
1,100
10,000
40,000
50,000
4,500
4,500
ZI
9,000
9,000
26,000
26,000
75,000
75,000
157,500
20,000
177,500
—
-
c
15,750
15,750
175,000
40,000
215,000
87,500
87,500
ZZZ ||
9 ,000 |!
9,000
26,000
26,000
75,000
117,000
192,000
157,000
20,000
177,500
•
25,800
25,800
15,750
10,000
25.750
175,000
40,000
54,000
269 ,000
87,500
107,200
194,700
-46-
-------
i
Iowa
Group 1
2
3
4
Total
Kansas
Group 1
2
3
4
Total
Kentucky
Group 1
3
4
Total
Louisianna
Group 1
2
3
4
Total
Maine
Group 1
2
3
4
Total
Maryland
Group 1
2
3
4
Total
Massachusetts
Group 1
2
3
4
Total
Michigan
Group 1
2
3
4
Total
Population
(OCO)
2,500
a,;so
2,000
250
2,:50
1,800
1,5,40
260
3,200
2,300
600
470
280
3,650
1,000
1,000
2,000
1,460
440
3,900
2,000
3,100
600
5,700
3,000
5,620
280
8,900
Investment Leva?. ($000)
m
5,010
5,000
5,000
5,000
9,000
„
9,000
3,200
20,000
23,200
2,500
2,500
17,000
17,000
60,000
60,000
9,000
9,000
II
•
87,500
87,500
70,000
70.00C
63,000
-
63,000
80,500
20,000
100,500
35,000
35,000
70,000
70,000
60,000
60,000
105,000
105,000
III i1
87,500
12,000
99,500
,'
TO, 000 :
10.000
80,000 |
63,000
45,600 I
1
108,600 1
;i
80.500 !
20,000 1
18,800 1!
'1
1
119,300
i
35,000
35,000 '•
58,400
i
128,400 'l
1
'i
60,000 '>
124,000 ':
JL84.000 !j
105,000
224,800
•i
329,800
-47-
-------
Figure XII-10 (Continued)
Minnesota
Group 1
' 2
i 3
4
!• Total
Mississippi
Group 1
2
3
' 4
•}
Total
Missouri
Group 1
2
3
4
Total
Montana
Group 1
2
3
4
Total
Nebraska
Group 1
2
' 3
4
Total
1 Nevada
Group 1
I
4
i
Total
New Hampshire
|i Group 1
I 2
3
4
f
• Total
New Jersey
Group 1
•; 2
!l 4
i.
| Total
Population
(000)
1,000
>
2,800
^_^^_
3,800
1,750
—
450
_
^^— ^—
2,200
3,000
1,000
520
180
4,700
300
—
400
—
^^^™*
700
1,200
-
300
~
1,500
150
350
-
500
500
-
220
30
750
700
6,315
135
7,150
Investment Lev«l ($000)
X .
3,600
—
-
—
3,600
4,000
—
-
_
— • ^^^
4,000
8,300
5,000
-
-
13,300
1,000
—
-
—
^^™ ^— ™ ™
1,000
1,400
—
-
—
1,400
180
—
-
180
4,300
—
-
—
~~~~~~
4,300
1,400
— ,
*"""""—
1,400
IX
.
35,000
_
.
— ^^^ ^ —
35,000
61,250
—
•
_
"•""••*"
61,250
105,000-
5,000
-
-
110,000
10,500
—
-
_
^^^^^*™^^
10,500
42,000
—
-
~
42,000
5,250
—
-
5,250
17,500
—
-
—
17,500
24,500
-
— ^~^~~
24,500
IZX
35,000
„
112,000 jj
JI
147,000 §
•
61.2SO ?
_ ii
18,000 ji
— J
- ~ — ~— -
79,250
icr ooo
5,000
. 20,000 n
- ij
130,800 |j
|
10,500 jl
— j
16,000 !
— j
N
26,500 •
1
j
42,000 !'
— J|
12,000 1
" .,
54,000 |i
|
i
5,250 ||
14,000 '
- j
~"~~"~~~ j
19,250
i
17,500
«. 'I
'l
8,800 ||
- ii
1
25,300 ^!
j
24.500
252,600 i
• . ... .. j
!
277,100
!
-48-
-------
1
;! ii -w Max.- t-o
! Group 1
i I
' 4
: Total
1 New York
Group 1
2
3
4
Total
North Carolina
Group 1
2
3
4
Total
North Dakota
Group 1
2
3
I) 4
Total
Ohio
Group 1
2
3
4
Total
Oklahoma
Group 1
2
3
4
Total
Oregon
Group 1
2
3
4
Total
Pennsylvania
Group 1
2
3
4
Total
Population
(000)
330
670
/ 10 0
3,000
5,000
6,950
3,300
18,250
2,500
2,600
5,100
300
300
600
1,000
1,000
7,890
760
10,650
1,000
1,550
2,550
400
1,700
2,100
9,000
2,020
780
u.*
Investment Level (5000) ';
I '
10,000
10,000
5,000
245,000
250rOOO
5,000
5,000
2,300
2,300
4,000
6,000
10,000
2,500
2,500
2,000
2,000
20,000
20,000
II ,
•
11,550
Ur550
105,000
245,000
350,000
'37,500'
87,500
10,500
10,500
35,000
6,000
41,000
35,000
35,000
14,000
14,000
315,000
315,000
III
11,550
26,800
38.350
105,000
245,000 1
278,000
628,000
37,500
' 104,000
191,500
10 , 500
12,000
22,500
35,000
6,000
315,600
356,600
35,000
62,000
97,000
14,000
68,000
82,000
315,000
80,800
395,800
-- (J —
-------
Figure 111-10 (Continued)
Rhode Island
Group 1
2
3
4
Total
South Carolina
Group 1
2
3
4
Total
South Dakota
Group 1
2
3
4
Total
Tennessee
Group 1
2
3
4
Total
Texas
Group 1
2
3
4
Total
Utah
Group 1
2
3
4
Total
Vermont
Group 1
2
3
4
Total
Virginia
Group 1
2
3
4
Total
Population
(000)
950
950
650
1,950
2,600
600
50
650
2,000
1,900
3,900
6,000
5,035
165
11,200
1,000
25
25
1,050
400
400
1,200
3,150
300
4,650
Investment Level ($000)
Z
1,000
1,000
2,300
2,300
1,500
1,500
3,800
3,800
15,000
15,000
7,500
7,500
3,000
3,000
4,000
4.000
II
33,250
33,250
22,750
22,750
21,000
21,000
70,000
70,000
210,000
210,000
35,000
35,000
3,000
3,000
42,000
42,000
III
33,250
33,250
22,750
78,000
100,750
21,000
2,000
23,000
70, QOO
76,000
146,000
210,000
201,400
411,400
35,000
1,000
36,000
•
3,000
3,000
42,000
126,000
168,000
-50-
-------
Flour* IXZ-10 (Continued)
1
Washington
Group 1
2
3
4
. Total
W. Virginia
Croup 1
2
3
4
Total
Wisconsin
Group 1
2
3
4
Total
Wyoming
Group 1
2
3
4
Total
Population
(000)
3,000
400
3,400
1,200
550
1,750
500
3,750
_150
4,400
100
250
350
Investment Level ($000)
X
30,000
30,000
20,000
20,000
1,000
1,000
300
•
300
XI
105,000
105,000
42,000
42,000
1,000
«•>
1,000
3,500
3,500
in j
105,000 '';
16,000 jl
121,000 '•
I
42,000 |
22,000 i
64,000
1,000
150,000
151.000
3.500
10.000
13,500
-51-
-------
FIGURE III - 11
Assumptions used to compute system costs in
Figures III-4, III-5, III-6, III-7.
General
Per capita waste generation rate - 4 Ibs. per day
Collection
1. Residential only via 25 cubic yard rear packer
trucW .
2. Twice per week curb side service
3. Cost of truck = $25,000
4. Pick-up? per hour » 85
5. One picjc up * one household "3.2 persons
(1970 Census)
6. One 8 hour shift per day: 6 hours for pick-ups,
2 hours for transportation and unloading of
refuse
Transfer
1. Open top - non-compacting trailers
2. Cost of tractor-trailer set - $40,000
3. Capacity of trailer = 75 cubic yards
4. Average distance from refuse pick-up point to
transfer station = 5 miles
5. Average distance from transfer station to land-
fill site = 15 miles
6. One tractor-trailer set for every 6 collection
trucks
7. One station for every incremental 500 tons per
day of refuse
8. Transfer used when average collection cruck haul
distance exceeds 10 miles (Cases assume this
would not be true in communities of less than
250,000)
-52-
-------
FIGURE III-ll (Continued)
Landfill
1. One scalehouse/office per site
2. site development costs include clearning, fence
construction, soil sampling, preparation of
drainage ditches, and minimal road surfacing
Incineration
One dump truck per 250 tons of incoming refuse
to haul resulting residue
Site development costs include fence construction,
and minimal clearing to obtain access to
dump area
All transfer and weighing performed at incinera-
tor facility
Shredding
1. Open top trailers used to haul shredded rofusp
2. No daily earth cover required - reduced lanu
equipment requirement
3. All transfer and weighing performed at shredding
facility
-53-
-------
3V. FINANCIAL MECHANISMS/TRADITIONAL
ALTERNATIVES
Descriptive Analysis
Municipal capital financing of solid waste
processing and disposal systems has traditionally
taken place in the context of overall community
planning and financing. Interviews with investment
advisors, municipal legal advisors and community
financial officers reveal that a municipality's
solid waste system is only one of the many programs
competing for operating and capital funds. Thus,
any description and evaluation of financing alter-
natives must be presented as part of a larger pic-
ture.
This is not to say that solid waste systems
are never independently financed. However, even in
those cases when a separate bond issue is used for
processing or disposal facilities, it is usually
developed and authorized within the normal frame-
work for municipal decision-making.
Municipalities commonly use three basic
methods to obtain financing for capital facilities
and equipment. The first is: borrowing funds to
pay for construction or to purchase equipment. The
economic justification for borrowing money to
finance capital improvements is simply this: if a
facility will provide a service now and into the
future, it should be paid for by those people who
will receive the benefits. In other words, the
project may be viewed as a community investment.
Ideally, the flow of receipts from the service
should match the payments for the investment. Bor-
rowing, and establishing a pay-back period roughly
equivalent to the life of the facility, allows the
community to accomplish this objective.
The second method for obtaining capital equip-
ment involves the use of current revenues. This
technique, of course, raises serious questions of
-54-
-------
equity, since future citizens of a community will
receive benefits at no cost. However, a community
may feel that the cost of borrowing capital, and
the problems of matching the repayment of funds
with the provision of service make borrowing an
unattractive alternative. In that case, if the
community expects approximately uniform expendi-
tures each year that the system is in operation,
the pay-as-you-go method may seem attractive.
Needless to say, this rationale breaks down if a
disproportionately large amount of capital funds
is required some years.
Finally, the third alternative is to allow
someone else to fund the capital project and to
levy charges for service. This approach relieves
the municipality of raising capital, and presumably
provides the most long-run flexibility. Of course,
then the problem becomes one of finding someone
else co provide the desired level of service at an
attractive price. For very capital-intensive pro-
jects, this may take a rather long time especially
if the technology is uncertain. Financing is often
a problem if the proposed contractor/operator is
either small or unwilling to pledge full corporate
credit to the project.
-55-
-------
Municipal Borrowing
A wide range of borrowing methods exists for
those communities that choose this alternative,
ranging from relatively short-term bank notes to
30-year municipal bonds. Each of these mechanisms
can be modified to fit special characteristics of
the project or the borrower. For example, loans
can be secured for equipment if it is relatively
mobile and can be resold should repayment problems
arise. Or, a community can borrow a substantial
amount of capital from a bank for a short period,
in anticipation of a future bond issue. The four
major categories of municipal borrowing that will
be discussed in this section are: medium-term bank
loanj, general obligation bonds, municipal revenue
bonds and leasing. The choice of one particular
mechanism will depend on a variety of factors. In
making a decision, a municipality will often rely
on the advice of outside financial experts.
Financial Institutions
Before discussing the specific characteristics
of each financing mechanism, it is useful to out-
line the role of those parties outside the munici-
pal government who may become involved in the capi-
tal formation process. The exact role played by
each party is a direct function of the type of
borrowing method that is to be employed.
Financial Consultants
Frequently, an outside financial consultant
will assist the municipality in choosing a particu-
lar financing mechanism or the specific variations
most suited to the circumstances. This task may be
performed by independent consultants, coivjnercial
banks, attorneys, engineers, accounting firms, or
investment banking firms.
Sometimes an outside party is asked to wear
two hats, e.g., (1) financial advisor and (2) under-
writer, when this occurs, it may be difficult to
-56-
-------
provide completely objective analysis since the
underwriter/financial advisor stands to realize greater
fees by recommending certain types of financing
mechanisms. Many regional investment bankers make a
practice of calling on municipal officials within their
localities on a routine basis, in order to become involved
in the financial decision-making process as early as
possible. They hope to persuade the municipality to use
a negotiated underwriting (in those states where this is
legal) with their own firms serving as underwriter.
One example where something less than completely
objective advice was provided involved a large county
planning to finance a new disposal system with a revenua
bond. Here the investment banker/financial advisor
attempted to dissuade the county from participating in a
state Environmental Bond Bank—which the county estimated
would save them over 1 percent in interest costs. The
firm also urged the county to use a negotiated issue—
even though the bond size is to be nearly $7 million and
could be expected to attract a good deal of interest
from underwriters. Fortunately, the county planners seem
knowledgeable enough to evaluate the full range of
options on their own. They are pursuing the bond bank
idea and should this fail, they plan to use competitive
underwriting.
A financial consultant is often hired to help a
municipality to prepare its bond offering, if this
mechanism is chosen. This means gathering all necessary
data, preparing the bond circular, advising on timing
and marketing methods, and recommending bond terms
(e.g., maturity schedules, interest payment dates, call
features and bidding limitations). In a competitive
offering, several underwriters are invited to submit
sealed bids, with the variable being the effective
interest rate. The municipality must in this case do its
own preparatory work or hire a financial consultant.
For a negotiated offering, most of this work is done by
the investment banker. In many small or medium-size
cities, no municipal official has the degree of specialized
financial knowledge required for this task. An outside
financial advisor is then a necessity.
There are many different ways to compensate a
financial consultant, primarily because there are many
different kinds of institutions that offer financial
services. When an independent firm or individual is
hired, the charges will generally be a direct function
-57-
-------
of time spent. If the consultant is to perform a
further role in the offering (such as underwriting, in
the case of an investment banker), it is not unusual
for the municipality to pay no direct fee for the financial
service. In this case, the consulting fee is simply
buried in the other charges, such as the underwriting
commission.!
Investment Banking Firms
The role played by the investment banking firm,
insofar as interaction with a community is concerned,
is rather straightforward. His function is simply as
a financial intermediary who purchases bonds from the
issuing city or other governmental unit and, in turn,
sells them to the ultimate investor. The underwriter
both assumes the market risk of price fluctuations
during this period and fulfills a distribution function.
The investment banking community's contact
with a municipality depends on whether or not the
bond underwriting is to be a competitive or a negotiated
bid. If competitive, it is not unusual for an under-
writing syndicate to submit a bid without any direct
contact with the municipality. On the other hand,
when the municipality chooses to negotiate the under-
writing, the investment banker acts as a financial
consultant.
An investment banker charges a fee which is
a percentage of the total bond underwriting. This fee
can vary, of course, but on small or medium-sized
issues, 2 percent of the total issue is a common
rate.
Bond Counsel
Another party to work for the municipality
during the process of bringing a bond to the capital
marketplace is the bond counsel. His main role is
to render an opinion regarding the validity of a
bond offering. This legal opinion is required on
virtually all municipal bond issues. The counsel
This is one reason that it is difficult to compare
rates on negotiated and competitive offerings.
-58-
-------
must determine whether the bond issue is in compliance
with all constitutional, statutory and charter
provisions applicable to the municipality issuing
the bond. The fee charged by the bond counsel, like
that of a financial consultant, is a function of
his time and the size and complexity of the
underwriting. *•
General Obligation Municipal Bonds
General obligation municipal bonds are long-
term obligations secured by the "full faith and
credit" of a political jurisdiction. The full-
faith-and-credit pledge is based on the general
revenue of the issuer, whose resources may include
property taxes, sales taxes, income taxes, unincor-
porated business taxes, personal property taxes,
taxes on gross receipts of designated businesses,
It is somewhat misleading to present a formula
that can be used to estimate a bond counsel's
fee in a particular situation. In many communi-
ties, a legal firm will be on retainer to the
city and the yearly fee will cover at least some
of the service charges for a particular bond issue.
With this caveat in mind, a "typical" fee for a
medium-sized revenue bond issue ($10 million to
$20 million) might be between .3 percent and .4
percent of the gross amount of the issue. Thus,
charges for a $10 million issue would be between
$30,000 and $40,000. For bonds smaller than
$10 million, the percentage would probably be
somewhat higher and, conversely, somewhat
smaller for issues above $20 million. Feet, for
general obligation bonds are usually somewhat less
than for a revenue bond of comparable size.
-59-
-------
license fees and other charges, grants-in-aid from
the federal government, and tax-sharing distribu-
tions from the state. Interest paid on general
obligation bonds is non-taxable (both state and
federal).
Uses in Solid Waste
A general obligation bond is used out of neces-
sity when a project does not generate revenue. It
is also used when a project's capital requirements
are relatively modest and hence would not justify
a revenue bond issue. The most important reason for
using a general obligation bond, however, is that
it is less expensive than any other method of
raising long-term capital. The interest rate on a
general obligation bond is the lowest a municipality
will be able to negotiate, in the absence of an
interest subsidy program.
The reason for this is that a potential bond
purchaser does not have to concern himself with
the projects to be financed with the bond issue.
The "risk" associated with the bond is basically
equivalent to the risk of the municipality as an
entity going bankrupt. Even should this unlikely
event occur, there is some precedence for the
state providing temporary assistance, to eliminate
or reduce bondholders' losses.
Primarily because of the favorable cost situa-
tion, then, a municipality frequently investigates
no other financing options for the bulk of its capi-
tal projects. There are, in fact, several other
valid reasons for using general obligation bonds.
For example, the municipality can lump several
smaller projects into one bond issue. Most general
obligation bond issues are an amalgamation of many
projects, because of the economies that exist in
the capital formation process. Part of the trans-
action costs are stable no matter how large the issue,
or they may vary less than proportionately as the
size increases. Also, a larger issue will probably
enjoy more favorable reception in the capital
markets, since more syndicates may be interested
in bidding. There is some evidence that
the effective interest rate is inversely
-60-
-------
related to the number of bids. Larger initial
issues can also be marketed more widely, to reach
those institutional purchasers who prefer to take
only substantial dollar amounts.
Capital for a solid waste disposal system,
when raised in a general obligation bond issue, is
almost always raised in conjunction with other pro-
jects. This has been the case for general obliga-
tion bonds in every city visited to date. Even
in Braintree, Massachusetts, where a general obli-
gation bond was used to finance a $2.8 million
incinerator, an additional $400,000 was raised for
sewer projects, and $285,000 for golf course improve-
ments—a total bond issue of $3,435,000.
It is not inconceivable, that a municipality
embarking on a project requiring very large amounts
of capital (e.g., an incinerator) would use a
general obligation bond for only one purpose. This
would be a rarity, however. For one thing, incinera-
tion is not a commonly used system. Landfill, on
the other hand, requires relatively small amounts
of capital in relation to a community's overall
needs. It is natural, then, to raise the money in
conjunction with other projects.
This is a very important point. In discussions
with investment bankers, bond counsel and city fi-
nance officers, we learned that the inclusion of a
solid waste system's capital requirements in a
general obligation bond issue will have absolutely
no effect on the issue. Both the investment bankers
and the bond buyers are only interested in the
community's general financial standing, and not in
the specific use of the funds to be raised. Further-
more , the intended use of the funds is not even
mentioned—or perhaps only alluded to. For example,
the circular for the Knoxville, Tennessee bond
issue of $9.8 million indicated that $5.8 million
(of which $1.4 million was for solid waste) was for
"public improvements"—no further breakdown vas pro-
vided. Even the Braintree, Massachusetts, oonds
mentioned earlier contained no project description
whatsoever. Only the single phrase, "$2,750,000
Incinerator Bonds" appeared in the circular. The
DeKalb County, Georgia, $15.2 million bond issue,
of which $6 million was for solid waste, was
-61-
-------
identified to prospective investors simply as
"various-purpose general obligation bond issue".
Characteristics and Legal Issues
A "typical" general obligation bond will
usually will be a serial bond issue: that is, the
principal will be repaid periodically over the life
of the issue. The longest period of maturity is
usually thirty years. A "call" provision allows
the municipality to repay the principal early,
should market interest rates change to the point
where a refinancing will save on interest charges.
If this path is followed, the municipality is
usually required to make a penalty payment to the
bondholders.
Individual state legislative bodies and con-
stitutions have spelled out the terms and conditions
that a municipality may offer on general obligation
bonds. Many states, for example, have limitations
on the total amount of general obligation debt a
single taxing district is allowed to issue. This
limitation is frequently based on a percentage of
the total assessed property values in the district.
In Massachusetts, for instance, the limit is
5 percent. Occasionally, the limit is a function
of the general tax revenue Being raised by the com-
munity. In any case, it appears that these limita-
tions have little impact on a municipality's ability
to issue debt, since several methods for avoiding
the restrictions are available.
For example, a municipality can bypass a
restriction based on the taxing district's total
assessed property value by adjusting the assessed
values upward, since property is seldom assessed at
a 100 percent valuation. A more complicated
method is frequently used when large capital pro-
jects are to be financed: a revenue bond is issued
with some form of long-term contract that effectively
endows it with the risk attributes of a general
obligation bond. (Debt ceilings seldom exist for
revenue bond financing.) .This tactic will be dis-
cussed at length in the section on revenue bond
financing. The municipality may decide to seek
approval from the state legislature to exceed the
-62-
-------
debt limit for a specific project. Maiden, Massa-
chusetts was successful in this regard when it pro-
posed to construct an incinerator large enough to
service surrounding towns.
A more important issue for a municipality is
whether or not voter approval is required before a
general obligation bond can be issued. In those
states where certain types of bond issues require
voter approval, the process of raising capital
becomes more cumbersome/ and methods for skirting
the restrictions are often developed.1
Since solid waste systems are seldom financed
by themselves in a general obligation bond issue,
we did not find any case of a defeated bond issue
for a solid waste system. While the failure of
voters to approve municipal bond financing has
received publicity recently, most defeated issues
involve controversial financing requests, such as
school construction or airport runway extensions.
The actual percentage of general obligation
bonds receiving voter approval in the United States
varies significantly from year to year. (The over-
all percentage depends to a large extent on results
in large eastern states.) The record of the last
three years is striking. In 1970, 60 percent of the
total dollar amount of issues up for a vote was ac-
cepted. In 1971, over 65 percent of the total dollar
amount was defeated. In 1972, 64 percent was
accepted.2 Included in this total approved in 1972
was Dade County, Florida's general obligation bond
issue in the amount of $50 million, to be used for
funding a county-wide solid waste system.
As in the case of a debt ceiling on general obligation
bonds, revenue bonds with long-term contracts are often
used to evade the necessity of frequent voter approval.
Some states"have several "classes" of bonds, some requiring
voter approval and others only city council approval.
2
Securities Industry Association. Unpublished data.
-63-
-------
Frequency of Bond Issues
The necessity of obtaining voter approval is
also an important determinant in a municipality's
decision on the frequency and size of general ob-
ligation bond issues. In those states where voter
approval is required, very large, infrequent bond
issues are the rule. The reason for this tactic is
to minimize the number of publicity campaigns that
the city need undertake to raise capital. It is pro-
bably also true that most voters cannot really eval-
uate the large dollar amounts and the individual cap-
ital projects involved in a typical financing. Thus,
the feeling in municipalities seems to be: "As long
as we are asking, we might as well ask for a lot."
Any effect this type of situation has on solid waste
expenditures is indirect. That is, insofar as all
capital intensive projects in a municipality are
affected, the solid waste processing and disposal
systum will be affected also.
Where voter approval is not required, it is not
unusual for medium and large size communities (popu-
lation over 150,000) to go to the bond market quite
frequently. A community groups capital projects into
combined issues and tries to time the issuing date to
coincide with favorable market conditions. For ex-
ample, finance officers in the cities of Memphis and
Knoxville, Tennessee, told us that general obligation
bonds are usually issued twice yearly — with no attempt
made in the bond circular to identify projects for•
which the funds will be spent.
Obviously, a municipality has a tremendous amount
of flexibility in this type of situation. However, the
ease of raising capital; once it becomes a "habit",
may induce community officials to authorize projects
without relying on in-depth analysis.
Observations
The user of a general obligation municipal bond
is the simplest and most flexible way for a community
to raise long-term capital. The amount of funds that
can be obtained with this mechanism is only limited
by the ability of the municipality to raise general
revenues. Only the amount of transaction costs esta-
blishes an effective minimum of about $500,000. Even
at this low end, a knowledgeable financial adviser or
-64-
-------
bond counsel can minimize transaction costs by arrang-
ing a private bond placement with a bank.
It is important to emphasize here that the projects
for which the funds raised from the issue are to be used
do not affect the ability to raise capital with a general
obligation bond. Thus, capital for a solid waste system
can be obtained as easily as for any other municipal
purpose if general obligation bonds are issued. Investors
are concerned with the ability of the community to repay
its obligations and not with the specific details of any
one capital project.
Two issues remain. First, if for some reason a
municipality cannot use a general obligation bond, wha".
options for raising capital remain? And, second, sime
the ability to obtain capital does not mean that cap-
ital will be allocated to those projects that are "most
needed", what mechanisms exist for stimulating muni-
cipalities to commit capital to certain projects —
and, specifically, solid waste systems? Both of these
issues will be examined later in this section.
Municipal Revenue Bonds
Municipal revenue bonds, like general obligation
bonds are long-term obligations issued directly by muni-
cipalities, authorities, or other quasi-public agencies.
Unlike general obligation bonds, they do not contain a
"full-faith-and-credit" clause which pledges the issuer's
general tax revenue to guarantee the schedule of interest
and principal payments. Rather, they pledge the net
revenue generated by the project to guarantee payment of
the funds obtained in the issue. Whether or not this
difference is truly significant depends very much on
the projected level and stability of the project's
source of revenue in relation to expenses. It is im-
portant to note that the circular required for a muni-
cipal revenue bond must describe and analyze the project
in detail. This is not true, of course, for a general
obligation bond.
Before examining the potential sources of revenue
available to a municipal project, and the concomitant
effect on project risk and bond risk, it is useful to
discuss the other factors that differentiate a revenue
bond from a general obligation bond.
-65-
-------
Use of Revenue Bonds
Perhaps the most interesting difference is the
singularity of purpose associated with a revenue bond.
Earlier, it was emphasized that most general obligation
bonds are used to raise capital funds for several
project simultaneously. This would never be the case in
a revenue bond issue. In addition, it would be unusual
to find a revenue bond used to finance anything other
than a "significant" project (in terms of dollar amount).
The ten instances of revenue bond financing encountered
in this study were devoted specifically to solid waste
projects and had an average size of $5.9 million.
As a result of the size and selective nature of
revenue bonds, they are issued only irregularly. The
mechanism is used only (1) when a major project, re-
quiring long-term capital, is to be managed by an in-
dependent authority or a distinct city agency; and (2)
when the service provided will generate enough revenue
to operate and maintain the facility and retire the bonds.
The legal power enabling a municipal government to
issue revenue bonds must come directly from the state.
In many jurisdictions, the use of revenue bonds results
from the legal restrictions placed on general obliga-
tion bond financing. Usually these restrictions involve
a ceiling on the municipality's outstanding general
obligation debt. The ceiling is based on a percentage
of assessed property value. Normally, this limit does
not apply to revenue bonds.
When a municipality is nearing its "ceiling" on
general obligation bond debt, it may turn to a revenue
bond as a means of circumventing and restriction. This
rationale is even occasionally used by communities that
are nowhere near their general obligation debt ceilings.
They wish to retain their flexibility for future general
obligation debt.
Revenue bonds are also used in many communities
as a result of tradition rather than for any "practical"
reason. This seems to be the case, for example, in many
Pennsylvania communities. Harrisburg has a number of
authorities that have been financed through revenue bonds.
When a project is large enough to justify a revenue bond,
and when it will provide a revenue-generating service,
this financing mechanism is usually chosen. The reason
-66-
-------
given may be the limitation on general obligation
debt, but the real reason is often to separate
general tax revenues from project revenues. The
municipal agency operating the project is often able
to increase total municipal revenues by instituting
a direct "service charge" for the new facility, with-
out an offsetting decrease in municipal taxes. Ap-
parently a new charge is less harmful politically
because it gets less publicity than a raise in qeneral
taxes (which at the local level are virtually synon-
omous with property taxes).
Finally, revenue bonds can be used by institutions
unable to use general obligation bonds because they
-------
Revenue and Risk
Finally, the primary difference between a
general obligation bond and a revenue bond is in
the way that revenue is generated to meet the schedule
of interest charges and debt repayment. In order
to meet the schedule, the project's net revenues1
must be greater than, or equal to, the payment
schedule.
The greater the probability that net revenues
will exceed scheduled charges, the lower the risk
of bond default. The risk of bond default has a
direct effect on the bond rating and interest
charges. For this reason, a municipality attempts
to prepare a financial framework for its project
that will maximize the probability that revenues
will exceed all expenses, including repayment charges.
A typical revenue bond circular will contain
a great deal of information about operating costs
and estimated revenues. Usually, the municipality
will hire an outside consultant to confirm its
own estimates. It often takes many months to pre-
pare an acceptable circular. This is one important
factor that lengthens the time required to complete
a revenue bond issue.
Many municipalities which use revenue bonds
are able to maximize the probability of the project
achieving a satisfactory net revenue bv siqnina a
contract or lease with the managing organization
that guarantees the bond payment. This practice
is especially prevalent when a city is committed to
providing the service.
There are several legal methods for designing
a revenue bond so that it has the risk attributes
of a general obligation bond. One of the simplest
was used by Harrisburg, Pennsylvania in funding an
incinerator project. Here, the city government
created a "paper" solid waste authority whose only
function was to hold legal title to the incinerator
and to be directly responsible for the bonds. The
Net revenue in this context means gross revenue
less operating and maintenance expenses.
-68-
-------
city then signed a non-cancellable contract with
the authority that stipulated payments to the authority
in the exact amount of the bond payment schedule.
The city operates and maintains the incinerator,
and it must pay the authority (and hence the bond ^
holders), whether or not the incinerator is ever used.
Discussions with both the bond counsel who
rendered the opinion and the investment advisor
who handled the underwriting revealed that the
capital markets thought of the Harrisburg Incinerator
Revenue Bond as a Harrisburg General Obligation Bond.
Further confirmation of this was provided by the
bond rating agencies. They rated the revenue bond
in the same category as the city's general obliga-
tion issues. The investment banker also indicated
that the negotiated interest rate would not have
been any different had the bond been a general
obligation issue.
Observations
The fact that a muncipality can design a
revenue bond that has the risk attributes of a
general obligation bond is an extremely important
comment on the methods actually used in raising
capital. For, in fact, the ten "revenue" bonds
examined for this study all had risk characteristics
closer \o those of a general obligation issue than
a true revenue bond. If a municipality is willing
to use this approach, it is obvious that an effective
alternative to the general obligation bond will
often be available if general obligation financing
is impossible or impractical.
Other options also exist. Four will be dis-
cussed in the following sections. Recall, however,
that no financing mechanism by itself will ensure
that capital is allocated to specific projects.
This requires the establishment of direct in-
centives by the institution desiring change.
In fact, as of this writing, the city has made
several payments to the authority. The incinerator
is still in the shakedown stages and has not yet
burned any significant amount of refuse.
-69-
-------
Bank Loans
The third category of municipal borrowing is the
bank loan or note. This mechanism can usually be put
to work much more quickly than either form of bond.
However, in general, it can only be used for relatively
modest amounts of capital and, except in rare instances,
is of relatively short duration — e.g., less than five
years.
Most municipalities use bank loans mainly to stab-
ilize cash flow. For example, the municipality may
have a line of credit which it draws upon periodically
in anticipation of tax receipts.
Occasionally, large cities use bank notes in anti-
cipation of a bond issue. Sometimes the notes — which
can be relatively substantial if arranged with a large
bank — are "rolled over" as they expire. In this sense
they provide a medium-term source of capital funds.
The use of bank notes has generally been limited
to financing collection vehicles in small municipalities
(less than 100,000 people). In this use, the loan is
quite similar to a conventional automobile loan: it is
paid back in equal installments over two or three years
and the bank retains title to the equipment as collateral.
Bank loans are used occasionally to finance other
types of equipment for solid waste systems in a small
community, e.g., processing equipment to be used prior
to landfill. These loans may be arranged by the equip-
ment supplier, who is likely to have bank .connections
in a major city. An example of this occurred in Great
Falls, Montana. The city was buying a shredding system
from the Heil Manufacturing Company at an installed cost
of $700,000. Rather than try to arrange a bond finan-
cing for this relatively small amount of money, Great
Falls included a stipulation in its project specificat-
tions that each bidder be able to supply financing for
five years. Heil simply arranged for its Chicago bank
to provide Great Falls with the loan. Since interest on
a bank loan to a municipality is tax-free to the bank,
the city was charged an interest rate which compared
favorably with the rate it might have been charged on
a general obligation bond. This underscores the common
features that different borrowing methods share.
-70-
-------
Leasing
There is one borrowing mechanism that does not
involve the immediate cash outlay required for an out-
right purchase: a lease agreement.
Under the lease agreement/ the leasing company
(the lessor) purchases and holds title to the equipment
during the lease term, and the lessee pays rentals for
the use of the equipment over a specified term. Lease
terms rarely exceed five years.
In solid waste, lease agreements have usually been
arranged by local equipment representatives who place
the financing with either a bank or leasing company.
Normally, interest rates on lease agreements average
between 12 and 18 percent of the capital cost, with
10 percent of total cost required at the end
of the term if the equipment is to be purchased.
The use of leasing for financing solid waste equip-
ment has been extremely limited because of the high
interest rates compared to other municipal sources of
capital. This alternative is used only for interim
financing that requires relatively small capital out-
lay.
We only encountered one case of municipal leasing
of solid waste disposal equipment in our field studies.
In Memphis, Tennessee, certain pieces of landfill equip-
ment were leased for a period of two months. At the
end of the two months, a new appropriations budget was
approved and the city was able to purchase the equip-
ment.
The use of leasing by private solid waste com-
panies on the other hand, is quite prevalent. Small
private collection companies that are trying to expand
their businesses may find themselves in a cash-flow
bind. They use this source of financing extensively.
However, even in these cases, leasing is still only
considered when less expensive sources of private capital
are not available.
Since lease-rental payments are not tax deductible for
the lessor as bank loan interest payments are, leasing
companies do not offer a reduced rate to municipalities.
-71-
-------
Current Revenue Capital Financing
Historically, the most common method for obtain-
ing capital equipment for use in a solid waste system
has been the "pay-as-you-go" technique. This has been
especially true in medium and small sized communities
and even today is the most common approach to acquiring
equipment.
As discussed previously, collection vehicles are
relatively short-lived and are usually replaced on a
scheduled basis (except when an entire system is to be
replaced at one time). For example, a community might
purchase enough new vehicles each year to replace one-
fifth of its fleet. Money for this purpose will be
budgeted from the city's general revenue receipts.
Whether the collection equipment will appear in a cap-
ital or an operating budget will depend on the communi •
ty's accounting system.
Processing and disposal equipment is often paid
for out of current revenue for a somewhat different
reason. In many areas, very little money has ever
been spent for disposal equipment. Those communities
with open dumps, or even marginal "sanitary" landfill
operations often use little more than a bulldozer at
the disposal site. Needless to say, very few of these
communities have transfer stations or other capital
intensive processing equipment. Their capital expendi-
tures for equipment can easily be financed out of current
revenue.
Even some medium-sized municipalities use the "pay-
as-you-go" mechanism to finance their solid waste systems.
San Diego County, California, with over 700,000 people
(excluding the city of San Diego), finances all solid
waste expenditures from general revenues. The county
is committed to landfill as the primary means of disposal.
It requisite capital expenditures are not large in re-
lation to the overall budget and are spread out over time.
It is interesting to note that, of the twelve "pay-
as-you-go" municipalities studied, several (including
Ventura County, California) were planning to use funds
from federal revenue-sharing programs to finance solid
waste expenditures.
*As noted previously, it is estimated that over 70 percent
of municipal disposal sites do not qualify as "sanitary
landfills".
-72-
-------
Observations
Municipalities that have been able to take care
of solid waste disposal through the use of a sanitary
landfill will be able to maintain the system efficiently
by financing out of current revenues. Equipment re-
placement is not likely to be a major expense and can
be taken care of on a periodic basis. Land can be
leased or purchased as an investment.
On the other hand, municipalities requiring either
an extensive upgrading of their present systems within
a short period of time, or a capital intensive, e.g.,
incineration, solution to solid waste problems, will
have to raise capital either by borrowing or by contr; -sting
with a private firm.
-73-
-------
Private Financing of Municipal Solid Waste Sysferns
The third alternative for a community seeking
to obtain capital equipment for use in a solid
waste system is to contract with a private firm
to raise the capital, purchase the equipment/ and
operate the system. This approach relieves the
municipality entirely of having to devote capital
funds to solid waste treatment, and presumably
provides the most long-run flexibility, since a
commitment to a specific system exists only for
the length of a signed contract.
In this section, only the financial
mechanisms available, and potentially available,
for funding private solid waste firms will be
discussed. There is strong evidence that an
industry growth pattern is emerging that could
lead to a much greater involvement for the private
sector in the provision of solid waste treatment
services.
Traditional Mechanisms
Historically, solid waste management firms
have financed their businesses with one or more
of the three "traditional" corporate financing
mechanisms: (1) internally-generated funds;
(2) debt (loans from banks or other institutions);
and (3) common stock or variations. Before the
emergence of large solid waste management firms,
(e.g., Waste Management, Inc., and Browning-Ferris
Industries), nearly all financing was accomplished
through internally-generated funds and occasional
local bank loans for trucks or other individual
items of equipment. The equity financing for
these firms earner primarily from the initial cash
investment of the owner(s), with occasional
additions from close friends or members of the
owner's family. Most of these firms were, thus,
"closely-held", small businesses.
The larger solid waste management firms added
a new dimension to the financing picture — public
equity. In addition to using traditional funds
sources, the larger firms turned to the public for
-74-
-------
the relatively large-scale financing they needed
to build their businesses (primarily through
acquisitions of the smaller, closely-held firms).
These are "widely-held" firms, with a broad base
of public ownership holding millions of dollars
worth of common stock. Browning-Ferris Industries,
for example, is traded on the New York Stock
Exchange.
To date, these traditional financing mechanisms
have provided adequate capital for developing the type
of systems that most communities have wanted to
install. Privately-operated disposal has almost
always taken the form of landfill. Even those trans-
fer stations operated by private firms have usually
been simple in design, and have frequently been
installed on community property. All of these
installations have had the common characteristics
of being "low cost", in terms of initial capital
required. This allowed the local firm, and often
even the national firm, to raise the minimum level
of requisite capital with relative ease.
Minneapolis, Minnesota provides an example
of a major private investment in solid waste
facilities. The city's contractor was a newly-
formed firm which was capitalized with private
equity funds and a bank loan. The initial capital
investment of approximately $1 million covered
transfer stations, tractor-trailer units and land-
fill equipment. The private firm posted a $2 million
performance bond with the city.
Existing Mechanisms with Potential Applicability
to Solid Waste
The picture for the future, however, is less
clear. Capital intensive solutions to solid waste
problems are becoming more popular, and perhaps
more necessary. Systems such as simple incineration,
incineration with resource recovery, pyrolysis, and
other forms of technically advanced resource
recovery options, are being discussed in many areas.
The current EPA grants program, which has funded
several prototype systems, is providing incentives
for more technologically sophisticated systems. New
Orleans, for example, needs to use mere sophisticated
systems because the state discourages incineration
-75-
-------
and the city's high water table limits the use of
landfill.
If these systems are to be built and owned
by private firms, it is possible that the routine
capital financing mechanisms in use today will not
suffice. Any innovative system involves much
more risk than basic sanitary landfill. But during
our interviews, large solid waste firms indicated
their unwillingness to commit the relatively large
amounts of capital necessary for construction
without some assurance that the systems will work
and that an adequate risk-adjusted rate of return
is projected. They also expressed some doubts
regarding their ability to raise the requisite
capital through their normal channels.
New ventures will undoubtedly have difficulty
with initial financing, not only because of the
amornts of capital required, but also because of
the technology involved in new approaches to solid
waste disposal. So, ownership of capital intensive
solid waste systems by private firms may require more
widespread use of financial mechanisms that can
raise the projected rate of return (or lower the
cost of capital) for a given capital investment.
In addition to the financing problems of more
capital intensive, technologically risky private
systems, there are often legal restrictions imposed
on municipalities by the state that act to deter
private investment. One example, which will be
discussed in more detail in the section on industrial
revenue bonds, concerns restrictions on the
community's ability to sign long-term contracts
with a solid waste system operator. This inability
to insure a long-term commitment to the project
increases the private firm's risk, and may render it
impossible for the firm to obtain financing at a
reasonable cost.
In the rest of this section, mechanisms for
increasing the flow and reducing the cost of capital
funds to private firms in the solid waste field
will be discussed.
Industrial Revenue Bonds
Perhaps the most easily understood new
-76-
-------
mechanism available for assisting a private firm in
financing a solid waste system is the industrial
revenue bond. The basic device is issued by the
municipality for or on behalf of a private
enterprise. It combines important aspects of
municipal and private debt financing.
Industrial revenue bonds are issued by the
municipality that, technically, will own the
facility or equipment to be acquired with the funds.
The private corporation then leases the equipment
from the municipality. The lease payments are just
sufficient to allow the municipality to make
scheduled payments of debt and interest. The
municipality acts as a vehicle through which a
corporation can obtain low cost financing. (An
example of the proposed use of an industrial
revenue bond is provided in the Saugus, Massachusetts
case study.) If the payment arrangements between
the corporation and the community are structured
as an "installment sale", the corporation may
claim ownership for tax purposes. This gives the
corporation a tax benefit in the form of accelerated
depreciation and/or the investment tax credit.
To the corporation, the most important feature
of industrial revenue bonds is the tax-free interest
provision, similar to that for municipal general
obligations bonds. The interest rate required on
these bonds may be a little higher than for general
obligation bonds, however, because of an important
difference in the security behind the bonds.
Whereas the general obligation bond is backed by
the "full faith and credit" of the issuing community,
the industrial revenue bond is secured only by the
assets of the corporation. It is not backed by the
"full faith and credit" of the community. The credit
rating of the particular corporation has a direct
bearing on the cost to that corporation of an
industrial revenue bond issue.
Although it is very difficult to generalize
about interest rates, it is likely that the
difference in interest rates for a corporation going
the taxable route, as opposed to the non-taxable
industrial revenue bond route, might range from 1 to
2 percent. Information available from the First
-77-
-------
Boston Corporation indicates that during the
second half of 1971. municipal general obligation
bonds sold at interest rates 2.45 percent lower
than comparably rated corporate bonds. During the
same period, industrial revenue bonds used for
pollution control facilities sold at interest rates
0.66 percent higher than municipal bonds.
Accordingly, during this period, the interest rate
on industural revenue bonds was 1.79 percent less
than the corporate rate. For a bond issue of several
million dollars, this' could represent a very
sizable savings over the 10-to-30-year life of the
bonds. (Over the life of a 20-year, $10 million
issue/ the total interest savings, with a 1.79
percent spread, amounts to about $3.6 million.)
The non-taxable interest provisions for
industrial revenue bonds have come under extremely
heavy pressure from the Treasury Department in recent
years, and, in fact, many categories within this
type of financing have been denied tax-free status.
In the environmental area, industrial revenue bonds
are tax-free for air and water pollution facilities
installed by a private corporation, as long as
these facilities do not "result in an increase in
production or capacity, or in a material extension
of the useful life of a manufacturing or production
facility or a part thereof."2
In the solid waste area, the picture is less
clear, primarily because the mechanism has received
little, if 'any, use. Interpretations of §1.103 of
the Internal Revenue Code regarding industrial
revenue bonds indicate that municipal solid waste
disposal facilities qualify for tax-free status,
notwithstanding the fact that they operate at a profit.
First Boston Corporation. Tax exempt pollution control
financing. Boston, [1972]. 55 p.
2Rules and Regulations pertaining to § 1.103 of the Internal
Revenue Code, July 5, 1972.
3Rules and Regulations pertaining to § 1.103.
-78-
-------
Discussions with officials of the Internal
Revenue Service, and with members of investment bank-
ing firms who have dealt directly with the solid
waste/industrial revenue bond question reveal that
the administrative complexities and too broadly
defined guidelines are responsible for an unduly
protracted IRS review/approval process. Most projects3
must be submitted to the IRS for a ruling before
tax-free stacus is granted; this ruling procedure may
take as long as three to six months.
The IRS is concerned with two restrictions
in its ruling process.1 The first is that the solid
waste which is entering the proposed system must
have no significant realizable value at the point
of input. Secondly, if the IRS decides that the
use of tax-free bonds will give a particular company
an unfair competitive advantage in its principal
line of business, it may hand down a negative ruling.
If tne profits from the solid waste system are
incidental to the company's principal business, the
project stands a better chance of approval.
The ability of a municipality to issue an
industrial revenue bond is dependent on state
enabling legislation. In a recent survey2, it was
found that, of 37 states which allow industrial
revenue bonds, 36 allow them to be used for pollution
control.
Another aspect of industrial revenue bonds
concerns the need for communities to sign long-term
contracts with corporations, to guarantee a minimum
supply of solid waste (and a minimum profit).
Rules and Regulations pertaining to § 1.103 of the Internal
Revenue Code, July 5, 1972.
2
Revenue bonds: a low-cost incentive to clean up. Industrial
Development and Manufacturers Record, 141(6):8-9, Nov./Dec.
1972.
3
The municipal board counsel involved must determine that the
issue will qualify for tax-free status. Except in obvious
situations, he does this by asking the IRS for a ruling.
-79-
-------
Security for these bond issues requires that long-
term agreements be completed between the parties.
However, many states do not permit communities to
enter into long-term (e.g., 20 years) service
contracts, so here, too, special legislation is
required.
From the corporation's point of view, the need
to provide security for the financing, in the
form of long-term contracts, is a major stumbling
block. In the Saugus, Massachusetts case, for
example, the corporation (THESCO) wanted to
negotiate twenty-year solid waste supply contracts
with fifteen to twenty communities in Boston's
North Shore region. Many of these communities
were reluctant to commit themselves to a
relatively high per ton cost for a long period of
time.
Leveraged Leasing
Another potential mechanism through which a
private solid waste firm might, in theory, acquire
capital funds is leveraged leasing. In brief,
the method operates by interposing a financial
intermediary from a high tax bracket between the
corporation requiring capital and the source of
capital. The intermediary's main purpose is to
hold legal ownership of the equipment. He is,
therefore, entitled to the tax benefits of owner-
ship, such as the investment tax credit, accelerated
depreciation, and the tax-exempt status of bond
interest. In short, a "tax shelter" is created for
the intermediary because the operating corporation is
not eligible for tax benefits. The intermediary
passes on his tax savings to the corporation in
the form of reduced charges for the equipment
lease.
A typical leveraged-lease structure might
look like this:
-80-
-------
Long -Term Capital Financial Operating
Source Intermediary Company
.Supplies 60-80%
of capital at
market or tax-
free rates
Loan
Debt
Service
Payments
.Owns equipment
.Equity interest"
20-40%
.Gets depreciation
expense for tax
purposes
.Services debt with
lease payments
.Return on equity-
tax benefits and
excess of lease
payments over
debt service
Eauio- ^
ment
Lease
payments
.Obtains equipnent I
at capital ccst
below market ;
rate
.Committed to
long-tern lease
The long-term debt is either guaranteed by the
operating corporation, secured by a lien on the
equipment, or both. The financial intermediary
uses the lease payments as a source of funds for
servicing the long-term debt.
In addition, the excess of lease payments over
debt service provides a cash flow which is used to
reduce the intermediary's equity investment. This
cash flow, together with the equipment's residual
value at the end of the lease — it is usually
bought by the corporation — and the tax benefits,
can provide an attractive rate of return to the
intermediary.
Leveraged leasing has ordinarily been used to
fin?nee individual pieces of capital equipment,
such as airplanes. More recently, several deals
involving pollution abatement installations nave
been arranged. As mentioned earlier, no attempt
to use this mechanism for financing solid waste
equipment has yet been made. However, it does
have potential in this area, especially if all or
a portion of the long-term capital were to be
raised through a tax-exempt industrial revenue bond,
-81-
-------
issued by the municipality where the equipment is to
be installed.
Recently, Boston, Massachusetts requested a
number of private firms to submit proposals for a
new solid waste disposal system. In the request,
leveraged leasing was discussed in the
"financing" section of its "background data":
Should the Corporation be unable to avail
itself of the full utilization of the
depreciation and investment tax credit, it
may be possible, subject to State Law and tie
IRS rulings, to pass these benefits to a
third party ... and substantially reduce the
overall interest cost. This concept is
generally referred to as "leveraged" leasing.
Accelerated Depreciation
Section 169 of the Internal Revenue Code pro-
vides that pollution abatement facilities may be
amortized for tax purposes over a 60-month period,
thereby providing significant tax write-offs for
qualifying firms. If a firm chooses to use
accelerated depreciation, it may not use the 7 percent
investment tax credit at the same time. On the
other hand, firms may choose to use regular deprecia-
tion schedules. In this case, the investment tax
credit may also be used. Although circumstances vary
for each firm and for each equipment installation,
the use of the investment tax credit and regular
depreciation will probably yield greater tax write-
offs for the firm than will accelerated depreciation.
Section 169 refers specifically to air and water
pollution control facilities; solid waste disposal
facilities may qualify as well. Discussions with
investment banking firms and the Internal Revenue
Service indicate that as long as the firm is con-
sidered to be the "owner" of the facility, a
favorable ruling can be anticipated. As with
industrial revenue bonds, however, a rather complex
IRS-ruling procedure is required.
It should be noted that accelerated deprecia-
tion (or the investment tax credit and regular
-82-
-------
depreciation) may be used in conjunction with the
industrial revenue bond mechanism. These devices,
which serve to lower the tax payments of the
corporation, may be very important in stimulating
private investment in solid waste systems.
The mechanisms available for private firms
that have been discussed here are all aimed at
reducing tax payments, thereby increasing after-
tax profits for the firm. Thus the mechanisms
are designed for firms which are now, or stand a
reasonable chance of becoming, profitable.
Marginal firms, either new ventures or ongoing low-
profit enterprises, may not fully benefit if their
pre-tax income is not sufficient to absorb the
additional tax deductions. This inequity is mitigated
to an extent by provisions for loss carrybacks
(three years) and carryforwards (five years).
Firms which are sure to benefit from these mechanisms
are or two types: the enterprise which can provide
a solid waste service at a profit; or, a larger
corporation which operates a solid waste subsidiary
on a marginal or loss basis. The parent company,
in the latter case, can use the tax losses to offset
income from solid waste or to "shelter" income from
another, unrelated, subsidiary.
-83-
-------
EVALUATIVE ANALYSIS
The remainder of this section will present an
assessment of those financial mechanisms that have
already been described in the context of their
usefulness for providing investment capital for
solid waste facilities and equipment. The evaluation
that follows is made from the point of view of
municipalities that need long-term capital.
The analysis will be presented within the
framework of six major issues and criteria.
1. Complexity of application. This issue involves
an analysis of the degree of difficulty in raising
capital associated with the usage of each mechanism.
Factors to be discussed include: an estimate of the
amount of calendar time that can be expected to
elapse between the initiation of a request for
funds and the receipt of the funds; the amount of
data that must be compiled and any indirect planning
and management effects that may occur; the need
for outside (consulting or legal) advice or certi-
fication, and the effect this may have on system
planning; and, finally, an estimate of the degree
of project evaluation that might be encouraged
by a particular mechanism.
2. Ability to raise capital. This issue involves
an estimate of each mechanism's efficiency in
(a) raising specific dollar amounts, and (b) obtaining
capital for specific kinds of projects.
3. Cost of capital. This discussion will include
both the direct and indirect costs of capital that
are associated with each mechanism. Not only will
the interest rate be considered, but, in addition,
an analysis of other costs that may be unique to a
specific mechanism will be presented—costs that
are often ignored in evaluating options.
4. Constraints on use. Included there will be
a discussion of the legal, technical, and economic
constraints associated with each mechanism.
5. Effect of subsidy level. All of the mechanisms
involve an indirect and, frequently, a direct amount
-84-
-------
of federal financial assistance. The analysis will
include an estimate of the amount of solid waste
investment that isstimulated by each mechanism, as
well as a discussion of the potential impact that
would be associated with a change in the level of
the subsidy.
6. Disruptions in the solid waste system.
Essentially, what will be discussed here is the effect
each mechanism has on the existing public/private
system mix.
The table on the following page summarizes the
financial mechanism analysis.
-85-
-------
FINANCIAL M'XIIANlliH EVALUATION UUMMABT
Reproduced from
jest available copy
Complexity of
Application
Ability to
Raise Capital
Cost of
Capital
Constraints on
fse
2ffeet of Sub-
sisy Level
General Obli-
fr.it i on n^nils .-
. No project
information .
required.
. No project
analysis
required.
. Short lead
time.
. Minimum
$500,000 due
to fixed
transaction
coats but can
combine sev-
eral omaller
unrelated
projects.
. Function of
community
credit, not a
function of
particular
project.
. Lowest irc.er-
est rates for
long-term
capital.
. Interest cost
2-3« less than
corporate
bonds.
. Indirect costs
include bond
counsel and
possibly fin-
ancial con-
sultant, but
costs aro rel-
atively low.
, Voter approv-
al ofton re-
quired.
. Legal debt
ceiling may
exist.
. Can only be
used by juris-
dictions with
taxing powers.
. Lowers inter-
est rate by
making in-
terest income
non-taxable
to investors.
. stimulates
municipal
capital in-
vestment in
gencral-not
oriented to
! solid waste
0 isruptlono
in Solid
/Van to Syotomo
or any other
specific
area.
. Deterrent
to chunqc in
direction of
pr iv.i to
3^c tnr .
Municipal Rev- ,
,'•• oriup <,nnmIsY ' .V
'.' Most complex. .
. Oond circular
must contain .
detailed econ-
omic and tech- :
nical informa-
tion that has
been certified
by outside
consultants .
. Requires more
time to ar-
range . '
. Minimum
$1,000.000 due
to heavy fixed
transaction/ad-
ministrative
costs.
. In "pure" fern,
not suited for
. technologically
risky projects.
. Maximum io func-
tion of pro-
jected project
revenues.
. Somewhat higher
than general
obligation bond.
. Is directly re-
lated to the
probability of
maintaining ad-
equate revenue.
. Municipality
can minimize
cost of capital
by giving rev-
enue bond the
risk attributes
of a general
obligation bond.
. Indirect coots
higher than for
general obliga-
tion issue.
, Can be ueod
only for spe-
cific projects.
. Good only for
relatively
large omounto
of long-term
capital.
. Mus'c be managed
by district
authority or
agency .
, Requires stable
long-term
source of rev-
enue.
. Lowers inter-
est rate by
making in-
terest income
non-raxable
to investors.
. stimulates
municipal
capital in-
vestment in
general-not
orier.ted to
solic. waste
or a."y other
specific
area.
. Deterrent to
char.nc in
dlic'.tio* of
p r J. x . to.
aert-ir .
Municipal UanK
,. Loans.
. Less 'complex JV
than bonds.
', particularly. j ..
If community
has bank
"line of
credit."
. Very short
lead time.
. No need for
external ad-
vice or cert-
ification.
. Absence of
heavy fixed
transaction
costs makes
useful for
omaller dol-
lar needs.
. Maximum lim-
ited by lend-
ing capacity
of bank.
. Better for
ahort end
medium term
loans than
bonds.
. Similar to
general obli-
gation bond.
in terms of
risk and
security-but
affected by
loan size
and term.
. Shorter loan
terms than
bonds.
. Smaller dol- .
lar amounts
than bonds.
. Less than
bonds because
loans rarely
fund major
municipal in-
vestments .
. Minimal.
. ...t , Lcanlnq
.. Relatively . -
simple.' ' '
. Minimal 'analy-
oio required.
i' Very short'. •
i lead tioo., '
• s .' _ i •
. Good fox omall
ohort-tana (5
ysaz '. loans .
. Applicable to
o pacific
pieces of
equipment.
eopecially
rolling stock.
. High effective
annual interaa
(12-18S).
. Same rate for
private/pub-
lic lessees.
. Short torn,
. small dollar
amounts .
. state-lmposod
rootr lotions
on municipal-
ities re:
signing multi-
yoar noncan-
colloble
iQQOao.
. No direct fed-
eral subsidy.
•
. Minimal.
Current Revenue
Capital
Fin.incin
i,
{'j
It
j!
j;
. Higher for private |i
firm than for 'i
municipality. 1
. Could be lowered j,
through mechanisms '
like industrial ]
revenue bond or ',
leveraged leasing.
•!
1;
' ;
j.
i
. Legal constraint •;
against conununi- '<
• .ties signing long-
term non-cancel i-
able cont.-acts.
. Insufficient pro--
fit poter'ia?. to :
compensate firm '
for risk. :
. Admin. /legal com-
plexities oi po-
tential mechanisms- .
Industrial rcvcnu" !
bonds and l^vfer.::^r;J.
leaoing. :
. Mechanisms iwaiia'.:..* .
do not benefit mar- ;
ginal fir?io. •
. No direct subsidy
unless co-nair.a- ;
tion municipal/ i
private findr.,-ina
mecnanisir !•> used: ''
combination lowet
interest cost^.
. Use of industrial .
revenue bond or --\
leveraged leasing ;
will improve i
fim'a return •
on .invest-
ment and .-.-ncouraij" ,
investment.
;
. Moveu in d.-.mrt.ic. .
of private icc'.ot ,
inVOiVPTi'Mt .
i
j
-------
General Obligation Bonds
Complexity of Application
General obligation bonds are essentially the
least complex mechanism available to a community
needing long-term capital from sources other than
its general revenue pool. This is so because the inform-
ation requirements of the bond circular are minimal.
The community pledges to pay both principal and interest
from ad valorem tax revenues that can be assessed
against all taxable property without limit as to
rate or amount. Community officials can assuage any
investor's concern about risk by describing the
community's tax base, and all debt commitments. It
is not unusual for a general obligation bond circular
to be no longer than three or four pages. Occasion-
ally, a more detailed description of the municipality
will be included, but only for cosmetic reasons.
It is unusual to include in the circular anything more
than a general indication of what the proceeds will
be used for.
Because of the minimal information requirements,
the amount of time necessary to arrange for a general
obligation issue is rather short. Actual calendar time
in different jurisdictions may vary because of differ-
ent legal requirements (e.g., the need for a referendum),
but, essentially, the only important economic reason
for delay of more than a few days or weeks is to
allow more potential underwriters to become aware
of the pending issue. This extra time may increase the
number of bids, and , theoretically, reduce the
interest cost.
Finally, the need for external advice or certifi-
cation is minimized when a general obligation bond is
used. Frequently, the circular can be prepared by
a municipality's finance department. If not, a
financial consultant can prepare one with ease. A
bond attorney will be needed, but his role will also
be minimal, since no unusual situations are likely to
be encountered. His function is merely to confirm
that the municipality has fulfilled all legal require-
ments for debt obligations.
-87-
-------
Perhaps the most important fact about a general
obligation bond is that prospective investors require
no extensive technical or economic analysis of the
proposed projects. This has its advantages and dis-
advantages. The advantages are clear:
. Reduced cost, since thorough technical and
economic analysis is usually expensive.
. Increased flexibility since risky projects
may be initiated without concern for the
opinions of investors. Delays due to an
in-depth risk analysis need not occur.
The offsetting disadvantage, however,is very
important:
. Since a careful project evaluation is not
required to obtain funding, it may never
be conducted, even by a municipality's own
personnel. Thus, the decision-makers may
be unaware of the technical and economic
risks *:hey are asking the area's taxpayers
to assume.
It becomes apparent that the minimum amount of "complexity"
associated with a general obligation bond issue is
not without some disadvantages to a municipality.
Ability to Raise Capital
General obligation bonds can be efficiently used
to raise capital of virtually any amount above a
reasonable minimum.^ The fact that a minimum exists
at all is due mainly to the existence of fixed
transaction costs. These would make the per-dollar
cost of small issues prohibitive. This matter of
"transaction cost" has two dimensions. The first is
the obvious cost to the borrower: e.g., bond counsel
fees, circular preparation, and administrati/e time.
Second is the less obvious cost to the lender. In
other words, the bookkeeping expenses, investigative
expenses, and minimal liquidity associated with a
Most investment bankers generally use the figure $500,000
as the lowest amount for which a general obligation
bond should be considered.
-88-
-------
few bonds from one source would deter an institutional
lender from purchasing a very small bond issue.
General -obligation bonds can also be used
efficiently to raise capital for virtually any
project or combination of projects. Investors are
not concerned with the use of capital when the
principal and interest payments are guaranteed by
the full faith and credit of the issuing community.
Another feature of this type of financing is
that many projects can be grouped together into one
bond issue. This makes general obligation financing
ideal for most small and medium-sized communities.
Smaller communities cannot be expected to float a bond
issue for a solid waste system when the system's total
costs fall below the minimum necessary for a bond
issue. By combining the solid waste system's capital
requirements with other projects, however, the
community may be able to raise capital that would
otherwise be impossible to obtain for the solid waste
project alone. In fact, this is a very common practice.
It can be argued that general obligation bonds make it
possible for a community to take care of waste needs
that might otherwise be neglected.
In summary, general obligation financing undoubt-
edly gives a municipality the most flexibility—insofar
as the ability to raise capital is concerned.
Cost of Capital
General obligation bonds have the lowest interest
rate obtainable among mechanisms covering financings
over comparable periods of time. This is true simply
because the risk of default is lower than with any
other financial mechanism.
In addition, indirect costs associated with
raising capital are also relatively low when general
obligation financing is chosen. As noted earlier, the
community can forego extensive outside technical or
economic analysis,and the necessary legal and financial
advice will be relatively inexpensive, since a
minimum of work is required. On the other hand, if
voter approval is required, the costs of holding an
-89-
-------
election must be attributed to this mechanism. The
need for voter approval may delay the financing and
may result in higher construction costs for the
project.
Constraints on Use
Three potential constraints exist that can restrict
the use of general obligation bond financing. The first
two are essentially legal in nature; i.e., they are
restrictions that have been placed on municipalities
by a local charter or by state law.
First, and most important, is the need in some
states to obtain voter approval for any proposed
general obligation bond issue. This requirement can
severely limit the use of the mechanism: projects
that are planned are "conditional" until they have
voter approval. Often, elaborate publicity campaigns
are prepared prior to the scheduled vote. These are
expensive and may actually contribute to "superficial"
analysis of solid waste needs, since officials must
spend time in "advertising" rather than analyzing.
Even if thorough analyses were prepared for dissemination
voters cannot be expected to evaluate all of the complex
technical and economic issues involved in solid waste
processing and funding.
The second, and far less important constraint that
may exist is a state-imposed debt ceiling for general
obligation debt. A community that wishes to issue
general obligation if it has reached the ceiling has
two alternatives. First, it can have the debt ceiling
increased. In those areas where the ceiling is a
function of assessed property value, this is easily
accomplished by a simple reassessment. If the ceiling
is a function of a variable that is less easily changed,
the second alternative is to have the ceiling raised
by the legislative body that established it. This
is the route frequently followed for specie?, projects
that a community could not otherwide underu-.ke.
The third constraint is perhaps the most obvious:
general obligation- bonds can only be used by political
jurisdictions' that have the power to levy property
taxes. This means that management of the project or system
-90-
-------
to be financed roust be undertaken by an arm of the muni-
cipal government.
Effect of Subsidy Level
Many of the financial mechanisms currently being
used or being considered for use, by a municipal
government are subsidized to some extent by the federal
government. In the case of general obligation bonds,
the direct1 subsidy is the reduction in interest
charges that occurs as a function of the tax-exempt
nature of the interest paid to the institution
supplying the capital. The bank passes on its savings
in taxes to the community in the form of lower
interest charges. Thus, the interest charges on
municipal bonds are lower than comparatively rated
corporate issues.
It is generally estimated that the subsidy is in
the neighborhood of 2 percent. The impact of the
subsidy is to stimulate investment in capital projects
above what would otherwise occur. This can be seen by
simply noting that the demand for capital funds is
a downward sloping function of the interest rate.
Municipalities can "afford" to invest in projects that
Municipal governments also receive an indirect subsidy,
since local taxes are considered deductible expenses
for those individuals who are directly involved in
paying the local taxes. Thus, for each dollar increase
in local tax receipts, federal tax receipts should fall
by, approximately, the average marginal tax rate of
individuals in that community, multiplied by one dollar.
This subsidy has an equally beneficial effect on
municipal expenditures for operations and for invest-
ment. However, it is interesting to note that
communities inhabited by individuals or corporations
with large incomes receive benefits at the expense
of poorer municipalities, since the average marginal
tax rate, and hence the subsidy level, will be larger
in the former case than in the latter.
-91-
-------
are marginal in an economic sense, projects that
would in most cases be rejected or deferred if
interest rates were higher.
It is interesting to note that this subsidy does
favor municipal expenditures, and puts private corporations
at a disadvantage. A private firm that might wish to
compete with a municipal agency is in a less favor-
able situation with regard to capital, except in those
instances where a corporation is given the rights to
raise funds through tax-free bonds.
The general obligation interest subsidy does not
give a community more of an incentive to invest in
solid waste facilities than in other municipal pro-.
jects. Of course, solid waste will receive more
capital funds than if no subsidy existed, but this
is so only because all municipal projects receive
more funds at the margin.
Because the federal subsidy to municipal general
obligation bond financing is non-discriminatory, a
change in its level will have only an indirect effect
on investment for solid waste facilities and equip-
ment. For example, if the non-taxable interest feature
of municipal debt were to be eliminated, as in the
proposed Proxmire Bill, it is easy to predict that
all municipal borrowing, and hence investment, would
be reduced. (However, the Bill itself does carry a
provision that would institute a direct interest
subsidy to municipal governments that would be
calculated in such a way as to restore the balance
that now exists.) However, investment in a community's
solid waste system would only be affected insofar
as a general reduction in capital formation would occur.
Changes in the level of this subsidy would affect only
indirectly the type of projects and systems being
funded.
Disruptions in the Solid Waste System
The relative ease of raising capital with general
obligation bonds is a deterrent to change in the existing
public/private management mix. Since a municipality can
raise nearly any amount of money, at subsidized interest
rates lower than those available to corporate borrowers,
-92-
-------
there is little incentive growing from capital
needs alone for officials to consider the use of
private system operators. This effect is reduced
by the existence of mechanisms which subsidize
the private sector, such as industrial revenue bonds,
-93-
-------
Municipal Revenue Bonds
Complexity of Application
Municipal revenue bonds are among the most
complex borrowing methods a community can use to
obtain long-term capital funds. This is the case
because the information requirements of the bond
circular are extensive. Essentially, the community
is pledging only the net revenues! from the
facilities to be installed as a means of paying
both principal and interest charges. For this
reason, a great deal of effort must be expended to
prove to potential suppliers of capital that the
propened system will be technologically and
economically viable. It is not unusual for
municipality to prepare a revenue bond circular
that contains fifty pages of text and tables, in
an attempt to describe every aspect of the system,
the exact usage of bond revenues, the economy of
the service area, all contractual agreements that
have been entered into, projected revenues, expenses
and earnings, and any other information that might
be relevant to the project. Obviously, the more
convincing this information is, the lower the
perceived risk of the project, and the bond will
be, and hence the interest rate.
Because of the complex information require-
ments, arranging for a municipal revenue bond can
be a rather lengthy procedure. Actual calendar time
The discussion on municipal revenue bonds
assumes, in the first instance, that "true"
revenue bonds are involved. It has been
emphasized earlier in the text that most
"revenue" bonds, as issued by municip?:ities,
are more like general obligation bonds than
true revenue bonds, especially when the funds
are to be used for solid waste facilities.
-94-
-------
will generally be a function of the amount of informa-
tion that has been prepared during the early phases
of project planning. Fortunately, much of the analysis
that must be presented in the circular will already
have been prepared for project planning, so prepara-
tion of the circular can be started during the project
planning stage. Nevertheless, much time can be lost
if the community's financial consultant feels that
financial schedules should be prepared in more detail,
in order to facilitate the offering.
Finally, it is absolutely essential that
extensive technical and economic analysis of the
project be performed by experts outside the municipal
government. The reasons for this are obvious. Any
potential supplier of capital would certainly require
that a disinterested party evaluate the project's
viability and whether the numbers and projections
being presented are reasonable. Thus, one would
expect that the municipality would call in both
engineering and business consultants to "verify"
the circular, much as a public accountant attests
to a corporation's financial statements.
A very important finding in this report is that
independent analysis is rarely provided or only
performed superficially for those "revenue" bonds
that are used to raise capital for solid waste
facilities and equipment. There seem to be two
somewhat related reasons for this state of affairs.
First, and perhaps most important, the bonds can
be structured so that there is little or no financial
risk to the investor, thus obviating the need for care-
ful analysis. A wide variety of methods are available
to do this, ranging from a simple statement that
revenue deficiencies will be made up from general
municipal revenues, to more complex long-term contracts
or leasing arrangements. The important result, however,
is that the risk associated with the project is
shifted from the suppliers of capital to the muni-
cipality's taxpayers. Thus, investors become con-
cerned more with the ability of the community to
repay than with the technical and economic analysis
of the project.
-95-
-------
The second reason for the lack of impartial
technical and economic analysis seems to be, simply,
that most municipalities can get away without it.
Generally, a project feasibility study is performed
by a consulting engineer. This study is often
deemed adequate for inclusion in the bond circular.
If this study does not include a reasonable amount
of economic analysis, whatever is missing is often
prepared by the municipality's financial advisor.
The fact that the engineering consultant who prepared
the feasibility study will almost always be asked to
"design" the project and presents a clear possibility
of conflict of interest.1
In summary, it must be concluded that although
municipal revenue bonds should generate extensive
technical and economic analysis, this is often not
the case. While the presence of this analysis
may be important, it often seems to be prepared to
satisfy "tradition," and may be worth less than
nothing if it lulls municipal officials into a false
sense of complacency.
Ability to Raise Capital
Municipal revenue bonds can only be used
efficiently to raise capital for specific projects
that (a) require substantial amounts of long-term
capital, (b) will be managed by an independent
authority or distinct city agency; and (c) will
provide a service that will generate a segregated
revenue source large enough to operate, maintain,
and retire the bonds. Within these limits, however,
a municipal revenue bond seems perfectly capable
of obtaining sufficient capital for nearly any
project.
In recent years, revenue bonds have
increased in use much more than general obligations,
1. The typical fee for engineering design is 10
percent of the final cost.
-96-
-------
reflecting the growth of municipal departments and
of special commissions and authorities to operate
utility, toll-road, airport, bridge, and other
facilities. Authorities are sponsored by both
state and local governments, and, in some cases,
jointly by two or more jurisdictions.
At the end of 1968, revenue bonds constituted
over 40 percent of total "municipal" long-term
bonds outstanding — as contrasted with less than
14 percent in 1950. In 1972, 41 percent of the new
municipal issues were revenue bonds.1 Unfortunately,
there is no way to estimate the percentage of revenue
bonds that are more or less guaranteed by the state
or municipality. However, conversations with
investment bankers and legal counsels give the
general impression that a very large percentage
are structured in this manner.
Perhaps the main distinction between municipal
revenue and general obligation bonds is the some-
what narrower range of dollar amounts for which a
municipal revenue bond is a realistic option. For
example, at the lower end, a general obligation
bond of $500,000 would be possible, but a revenue
bond of anything less than $1,000,000 would be
unrealistic. This is true primarily because of the
transaction costs involved. In general, it is not
economical to prepare a detailed circular for a
small amount of capital.
Typical size differentials between revenue
and general obligation bonds can be understood by
examining the average issue sizes. For example,
of the bond issues reported in 1972, to the
Securities Industry Association, 1,342 revenue bonds
were used to raise $9.3 billion — or an average of
$7.0 Million per issue. Tnis is in striking contrast
to the figures reported for general obligation
bonds: 4,114 bonds raised $13.3 billion, or an
average of $3.2 Million per issue.
This difference is quite significar.c in the
area of solid waste system financing. Recall that
1 Securities Industry Association.
-97-
-------
the largest number of solid waste disposal systems
can at best be classified as sanitary landfills.
This can be largely attributed to the high percen-
tage of small communities — relative to the total
number of communities in the country — which find
landfilling to be the only reasonable system from
an economic point of view. The point has also been
made that the installation, or upgrading, of most
sanitary landfills would require expenditures well
below $1 million. Thus, 'the use of revenue bonds
for solid waste system financing will be a
realistic option in only a small percentage of all
communities.
It should be noted, however, that although
only a small number of communities have planning
facilities more capital intensive than landfill,
this still accounts for a large dollar volume —
over $600 million, as noted in the first section
of this report. If a significant trend toward
regional!zation should develop, with attendant
increase in independently-managed solid waste
disposal organizations, the revenue bond concept
will likely become a more frequently utilized
financing mechanism.
Cost of Capital
There is little doubt that the cost of obtain-
ing long term capital with a municipal revenue bond
is greater than the cost of using a general obliga-
tion issue. The exact amount of differential in the
interest charges will vary as a function of many
variables. Public managers can obtain estimates of
the differential, under any given circumstances, by
soliciting bids from an investment banker on a
negotiated basis. The investment banker can make
these estimates on the basis of a municipality's
typical bond rating, the size of the issue:, the nature
of the "guarantees", and credit market conditions at
the time.
The most significant independent variable is
the security of the issue. Whenever a municipality
-98-
-------
chooses to structure a specific revenue bond to
give it the risk attributes of a general obliga-
tion bond, the interest differential will be
small or non-existent.1
Even when a municipal revenue bond is made
as secure as possible, however, its total costs
will be higher than a general obligation issue.
This is so because of the greater indirect costs
associated with a revenue bond issue (i.e.,
those costs not reflected in the interest rate).
For example, if an outside consultant is retained
to evaluate the project, the cost of this service
should be attributed to the cost of capital.
Even if outsiders are not involved, the cost of
preparing the more complex circular will certainly
be higher than what must be expended for a
general obligation bond circular.
During the final preparation of this report, it
came to the attention of RPA that the Michigan
State Supreme Court had recently ruled on a tax-
payer suit questioning the legality of a munici-
pal government pledging general revenues to make
up any deficit in project revenues. The case has
not yet been published; thus, it was not possible
for RPA to interpret the issues. However, it
appears that the decision may be quite specific
and limited to projects involving use of a
municipal facility by a private person. The
actual case involved a guarantee of bond payments
by Wayne County, Michigan, in connection with a
local sports arena. In the absence of county
intervention, the project revenues were tied
to attendance figures for sports activities.
The court ruling seemed to be limited to the
issue of municipal support of a facility to be
used by a private concern, without prior voter
approval — which is required of all general
obligation bonds in Michigan. Nevertheless,
even if the ruling is limited, the istue of
circumventing the need for voter approval may be
questioned in other contexts. If this should
happen, there can be little doubt that the
interest differential between "revenue" bonds
and general obligation bonds will begin to rise
as the "guarantee" begins to lose value.
-99-
-------
Of course, municipal revenue bonds seldom
require voter approval and this can be considered
a cost saving in relation to those general
obligation issues that do require voter acceptance
since it is expensive to conduct an election. It
should also be pointed out that if a project is
delayed while awaiting a favorable vote, increased
project construction costs, due to rising construe*
tion costs over time, might also be attributed to
the financial mechanism. Thus, revenue bonds may
actually have some favorable cost attributes in
comparison to general obligation issues.
Constraints on Use
The most important reason for using a revenue
bond, rather than a general obligation issue can
be understood in terms of the different set of
constraints governing each mechanism. A general
obligation issue may require voter approval, may be
restricted because of an existing debt ceiling, and
can only be issued by a political jurisdiction
with taxing power; a municipal revenue bond has none
of these constraints. In fact, municipalities most
frequently list this difference as their reason
for using revenue.bonds. (But see footnote on
preceding page) For example, many municipalities
use a revenue bond simply to avoid the necessity of
obtaining voter approval for a proposed project.
Several examples of this have occurred in the solid
waste field. In these cases, there doesn't seem to
have been any special concern that voter approval
could not be obtained. Rather, the attitude was
simply: "Why bother to ask?"
The most significant constraints that exist
with regard to a revenue bond are essentially
economic:
It can be used only for specific projects.
It is useful mainly for generating
significant amounts of long-term
capital.
-100-
-------
It must be managed by an independent
authority or distinct city agency.
It must have a reasonably stable source
of revenue.
It is normally used for projects of
relatively low perceived technological
risk.
Effect of Subsidy Level
The federal subsidy to municipalities associated
with the use of revenue bonds has an impact on
investment in solid waste systems identifcal to
the subsidy to general obligation debt.
To summarize:
Municipal investment in all capital
equipment is stimulated. This, of course,
effects solid waste expenditures.
Increasing the level of the subsidy will
have only an indirect effect on expendit-
ures for solid waste facilities and
equipment.
Changing the level of the subsidy will
have only an indirect effect on the type
of projects and systems that are installed.
Disruptions in the Solid Waste System
As with general obligation bonds, the relative
ease of raising capital with municipal revenue bonds can be
viewed as a deterrent to any significant change in
public/private mix in solid waste management. Revenue
bonds are often used specifically in those situations
where general obligation debt cannot be issued.
Without the availability of revenue bond financing as
-101-
-------
an effective alternative, the community would be
more inclined to consider the private sector.
For example, if a community has reached its
general obligations debt ceiling, and has no
realistic method for having it raised, it might
very well consider, were it not for the existence
of revenue bonds, contracting with a private firm
for a solid waste disposal system. Revenue bonds
give the community the alternative of retaining
management control. Or, in the case of a regional
authority which might otherwise have considered a
private contractor for system financing, revenue
bonds now encourage the authority to retain control,
Of course, it has been pointed out that
revenue bonds are used only by relatively large
cities, or regions, for large projects and the
absolute number of these cities using revenue
bonds may not be significant. However, it is
precisely these larger areas and regional govern-
ments that hold the most interest for private
operators, who want to put their management skills
to work in areas where large-scale economies are
possible.
However, no attempt is being made to place
a value judgment as to the most efficient public/
private mix. This discussion has been presented
merely to indicate how different financing
mechanisms might influence the situation.
-102-
-------
Municipal Bank Loans
Municipal bank loans must be evaluated in a
somewhat different context than the two bond mecha-
nisms. Bank loans and bond issues are not usually
viewed as alternative sources of capital for the
same project. A bank loan can essentially be
considered only as a source of short-term capital,
and will be reviewed in this framework.
Complexity of Application
It is difficult to generalise about the com-
plexity of obtaining a bank loan because of the
wide variety of specialized circumstances that
may surround a loan application. For example,
many communities have established what can be con-
sidered as a "line of credit" with one or more
banks in their area. Thus, if a project
suddenly requires funds on short notice, it can
simply turn to this credit account. The bank that
deals with a community on a continuing basis will
not have to compile much new information at the
time the loan is being processed. Also, if the
loan is to be secured by what amounts to a "full
faith and credit" clause, the bank will be accepting
only a minimal amount of risk, and will not be
expected to require a great deal of information.
Since so little information is required, it
takes a relatively short time to arrange for a
bank loan. If the bank and the community have an
ongoing relationship, additional financing might
be arranged in a matter of days. If, on the other
hand, a new bank is being brought into the picture,
a period of several weeks might be required to
prepare and process the necessary information.
Finally, it is unlikely that a municipality
will have any need to obtain external advice or
certification during the process of obtaining a
bank loan. Since it is dealing directly with the
supplier of capital, it will not have to "guess"
what information is most relevant. The bank will
simply ask for whatever it needs and no formal cir-
cular needs to be prepared.
-103-
-------
In this regard, it is also very unlikely that
any external technical or economic advice will be
required. A bank loan would not be used for "risk"
capital and/ therefore, technical advice would be
meaningless. Also/ since a bank would not wish to
make a "revenue" loan/ where repayment would be
tied to a specific source of revenue/ economic
analysis would also be superfluous.
Ability to Raise Capital
As mentioned above, bank loans can be used
efficiently to raise short-term capital of a
relatively modest amount. There is essentially no
minimum/ and the maximum would be a function of
the bank involved. Thus a large New York/ Chicago,
or other major city bank could supply several
million dollars, whereas a smaller local bank
might have a maximum of several hundred thousand
dollars.
Bank loans have found their greatest use in
the solid waste field in financing collection
equipment. For this purpose they are a very efficient
capital source, since they are usually written like
a typical automobile loan, with a minimum of
complexity. Bank loans, however, have been used
very infrequently for financing solid waste dis-
posal equipment. There seem to be two reasons
for this.
First, those smaller communities that might
consider a bank loan (because their proposed
system would not require enough capital to justify
a bond issue) have either financed with pay-as-you-
go, or, perhaps more typically, have not financed
anything. And second, larger municipalities have
needed either more or longer-term capital than a
bank would wish to supply. These larger areas
have typically utilized general obligation bond
issues to obtain capital.
In summary, then, bank loans as a source of
short-and medium-term capital may give smaller
communities the opportunity to finance certain kinds
of solid waste disposal equipment and facilities
when pay-as-you-go or bond financing must be
-104-
-------
ruled out. However, except in isolated instances,
such as the Great Falls, Montana shredder, they
are unlikely to become a significant source of
capital funds for solid waste.
Coot of Capital
It is difficult to generalize about the cost
of capital associated with municipal bank borrowing
because of the wide number of circumstantial
variables reflected in the costs. For example,
since the risk of a bank loan is essentially
similar to that of a goneral obligation bond issue,
the interest charges attributed to this factor
would be similar to those prevailing on a short-
term, general obligation issue — if such a
mechanism existed. However, other variables will
also be reflected in the interest rate; e.g.,
the term of 'the loan, the loan size, and the
bank involved.
In addition, some of the indirect costs that
would be separately charged in a bond financing
will be subsumed in the interest rate of a bank
loan. For example, if the bank provides legal
assistance, and helps the community to prepare the
loan application, this will be reflected in the
interest charge.
In general, though, it would not be unfair
to say that a municipal bank loan is a relatively
inexpensive capital-forming mechanism — essentially
comparable to a general obligation issue.
Constraints on Use
Bank loans, like municipal revenue bonds,
have only economic constraints on their use. Voter
approval is generally not required; there are no debt ceil-
ings; and they can be used by authorities and public
corporations that do not have general taxing powers.
The meaningful economic constraints that
have already been mentioned are the relatively low
maximum for loans and the relatively short term for
which a loan can be engineered. Since these
-10S-
-------
economic constraints are so significant, bank loans
are simply not an effective alternative to either
general obligation or municipal revenue bonds.
Their use in solid waste financing will undoubtedly
continue to be limited.
Effect of Subsidy Level
Interest on bank loans to municipalities,
like that on municipal bond issues, is tax-free
to the supplier of capital. The effect of
this federal subsidy on bank loans, insofar as it
impacts on municipal investments, is undoubtedly
much less than its effect on bond issues. This
is true because bank loans to municipalities are
only rarely used for investment spending. In
other words, since the economic constraints on
bank loans preclude their use as a substantial
source of funds for investment, the federal subsidy
involved is less effective in encouraging invest-
ment than is the subsidy to bond issues. To put
it yet another way, one dollar of federal
subsidy to bank loans encourages less investment
than one dollar subsidy to a bond issue.
Beyond this fact, it can be argued that the
secondary effect of the subsidy on solid waste
spending is relatively insignificant. Municipalities
do not generally use bank loans for funds to invest
in solid waste processing and disposal equipment.
So increasing the level of the subsidy would have,
at best, only a minor and indirect effect on ex-
penditures made for solid waste facilities and
equipment. Furthermore, changing the level of the
subsidy could not be expected to have a measurable
effect on the type of projects and systems (for
example, the labor-capital ratio) that would be
installed.
Disruptions in the Solid Waste System
In contrast with municipal general obligation
or revenue bonds, bank loans do not seem to have
much effect on the existing public/private manage-
ment mix. Since a bank loan would rarely be used
-106-
-------
to finance long-term investment in solid waste
equipment, its use does not discourage a munici-
pality from utilizing a private contractor. In
fact, in those larger communities where private
firms would be most interested in entering the
solid waste field, bank loans are not a meaning-
ful capital financing option.
-107-
-------
Leasing
Leasing, like bank loans, must be viewed strictly
as a short-term source of financing. It is rarely
used by a municipality except to provide interim
financing for equipment needed before appropriations
or long-term capital arrangements can be made.
Complexity of Application
Generally speaking, the negotiation of a
lease agreement is an extremely simple process, requir-
ing only a few days time at the most. Typically, in
negotiating a leasing agreement, the community first
informs a leasing agent of its intention to acquire
a certain piece(s) of equipment. A proposal, including
terms, lease documents, and credit requirements, is
then sent to the municipality. A very small community
might be required to supply financial statements, and
perhaps a bank reference. In a larger community,
however, where the typical case would involve only a few
pieces of equipment to be leased, the amount of the
least payments relative to total community cash flows
would be so insignificant as to obviate the need for
a credit check.
When the forms are returned to the lessor, a purchase
order is prepared, sent to the municipality for endorse-
ment and then forwarded to the equipment supplier.
Payment is then made by the lessor to the supplier upon
acceptance of the equipment by the municipality. These
transactions may take a few days, even as little as one
day, depending on the amount of the lease and the size
of the community.
Because the lessor will retain ownership of the
leased equipment, the transaction requires no
certification, other than an assurance of the muni-
cipality's general credit standing. From the com-
munity's standpoint, any technical or economic
evaluation of the equipment being leased will
probably have been performed prior to the lease
transaction, but only if plans are being prepared
for a large expenditure program. The reason for
-108-
-------
this is that leasing is usually considered a
financing source of last resort. Consequently,
it would be rare for a municipality to prepare an
expenditure program with the intention of substan-
tial lease financing.
Ability to Raise Capital
Leasing is almost exclusively used to finance
specific pieces of equipment over the short term-
normally five years or less. In the case of solid
waste, the equipment would include rolling stock
and perhaps some moderately priced compaction
equipment. It would be unusual for a leasing
company to consider financing pieces of equipment
that could not be resold, if need be, or that might
cost more than a few hundred thousand dollars.
Consequently, leasing has been used primarily
to finance collection and transfer trucks, and to a
lesser extent, landfill heavy equipment. However,
because of the high cost of leasing, relative to
other sources of capital available to a municipality,
its use has been extremely limited. It is antici-
pated that leasing's primary attraction will con-
tinue to be its ability to provide a flexible
interim source of capital to finance equipment
needs.
Cost of Capital
Unlike most other sources of capital, lease
agreements have fairly uniform rates which the
leasor will apply to any piece of equipment, pro-
viding it satisfies certain minimum criteria. These
rates may vary, however, depending upon the amount
involved in the transaction and the credit risk.
The effective annual interest rate is high,
typically 12-18 percent. This rate would apply to
either private or public leasees. Since the mun-
icipality could normally borrow from a bank at
considerably lower rates, it is understandable
that this mechanism is used only as a last resort.
-109-
-------
Constraints on Use
The significant constraints on the use of
leasing appear to be as follows. Leasing can normally
be used only to finance equipment which could be
resold during the lease term. Furthermore, lease
terms are usually limited to a maximum of five years.
Finally, the amount of capital that can be lease-
financed is limited.
In addition, some states impose a legal
constraint on the use of lease financing, by prohibit-
ing municipalities from entering multi-year, non-
cancellable contracts. Thus, in some areas, the
use of leasing would have to be limted to one-year
terms, or to cancellable leases only.
Effect of Subsidy Level
Since the interest charged to a municipality
as part of the lease rental payment is treated as
ordinary taxable income to the lessor, there is no
direct subsidy for use of leasing. This is the
prinary disadvantage of this mechanism from the
municipality's viewpoint, and this also helps
explain why leasing is such a high-cost alternative,
relative to other sources of capital.
Disruptions in the Solid Waste System
Leasing would not be expected to have any
direct effect on the existing mix between public
and private solid waste management. Because leas-
ing is available to both public and private organ-
izations at essentially the same interest rates,
it can be construed as essentially a neutral
mechanism.
-110-
-------
Current Revenue Capital Financing
Complexity of Application
The pay-as-you-go technique for financing
municipal capital investment is the least complex
financial mechanism available—since money already
in the community's possession is used for the
facilities and equipment. Thus, no formal, or even
informal, financial documents need be prepared.
Further, no external advice from consultants or
certification by a legal advisor would be required.
Thus, the mechanism does not, by itself, encourage
either technical or economic analysis. However,
there is some evidence that in cities that
maintain specialists to review program requests,
capital requests from current funds may receive
at least as thorough an analysis as a program
requiring debt financing. This type or review is
dependent, however, more on the management practices
of the municipality than on a requirement established
by the pay-as-you-go method.
Of course, the expenditure would have to be
approved at some level in the municipal government.
Usually this would be a city council and the mayor.
However, this same level of approval would be
required for whatever financing mechanisms were to
be used. Thus, the financing of capital investment
with current revenues is clearly the simplest
process for a municipality to follow.
Ability to Raise Capital
Unfortunately, it is in the ability to raise
capital that the pay-as-you-go technique is lacking.
In fact, it is precisely because this mechanism is
inadequate that others exist.
The absolute amount of capital investment that
can be funded from current revenue is obviously a
function of both the general wealth level and the
size of the community. Typically, the amount of
current revenues that municipalities budget for solid
-111-
-------
waste is less than their respective capital require-
ments. This is true even in wealthier communities—
where tax dollar receipts per capita are higher—
because such communities often have a higher level
of service standards and thus, proportionately
larger capital requirements. Even the wealthiest
communities would normally not be able to fund all
of their investment requirements from current revenues,
•
What seems to be true is that most communities
can fund some investment activities from their
general revenue fund. Of course, if they do raise
capital with other mechanisms, the activity which is
supposedly funded from general revenue is rather
arbitrary. In other words, the community investment
budget is really funded from several sources, only
one of which is general revenues.
Clearly, this form of budgeting is the only
one which makes economic sense. As mentioned
earlier, it would be inequitable to current tax-
payers to expect them to pay for a system that
will be used far into the future, and in some sense
at no cost to the future residents. When invest-
ment capital is borrowed, and receipts from the ser-
vice provided by the system match the system cost,
this inequity is removed.
Additional analysis of this issue is nearly
impossible, owing to the wide variety of community
sizes, wealth levels and requisite solid waste
systems. Suffice it to say, that although pay-as-
you-go has been the most prevalent form of solid
waste capital financing, this is essentially
because so little capital has been spent. Two
reasons can be indicated. First, there has not
been a large demand for capital equipment in the
vast majority of communities; and, secondly, where
capital expenditures have been made, they have been
spread out over time.
Cost of Capital
Obtaining investment funds from current
revenues requires no community involvement with
external suppliers of capital. In this sense, then,
there is no "cost of capital" that can be compared
with the costs of other financial mechanisms.
-112-
-------
Nevertheless, capital is never a free good.
In this case, the cost of capital may be thought
of as an "opportunity cost." In other words,
what is the return on investment that could have been
earned on the funds if the municipality did not
choose to make the investment. The opportunity
cost may be expressed in terms of foregoing social
benefits that could otherwise be provided to members
of the community.
For example, at a minimum, the municipality
could return the funds to its taxpayers in the form
of lower taxes. These individuals could "invest"
the money in a savings account. Thus the munici-
pality could compare the rate of return on savings
accounts with the next alternative borrowing method—
e.g., a general obligation bond.
In fact, then, it might be said that pay-as-
you-go capital is more expensive than certain forms
of borrowing. This is so because the federal
government directly subsidizes municipal borrowing;
the pay-as-you-go process gets no direct subsidy.
Constraints on Use
Obviously, the one major advantage of current
revenue financing is that there are essentially
no outside constraints on its use. Whatever funds
a municipality has available can be invested in any
way it chooses. Of course, the internal constraint
of capital availability and competing demands for
funds is significant.
Effect of Subsidy Level
As already mentioned, there is no direct
federal subsidy associated with the use of pay-as-
you-go capital financing. There is a second-order
subsidy to the extent that individual tax payments
(i.e., property taxes) to municipal government are
deductible expenses from federal tax returns.
However, this subsidy would operate even when
outside capital is obtained.1 Thus, there is a net
In contrast, if solid waste revenues are collected
via user charges instead of through general tax
receipts, this subsidy will be eliminated, since
user charge payments are not tax deductible.
-113-
-------
financial disadvantage to the inhabitants of a
municipality when pay-as-you-go capital financing
is used relative to more highly subsidized mechan-
isms such as general obligation or revenue bonds.
Disruptions in the Solid Waste System
Financing solid waste systems with capital from
the general revenue fund is essentially a neutral
mechanism insofar as its effect on the public/private
mix in the management of solid waste systems is con-
cerned. Since there are no direct federal subsidies
involved, there is no financial reason for a community
to feel committed to installing and operating the
system itself.
In fact, if a municipality that has used pay-
as-you-go financing for several years suddenly is
faced with the necessity of a large capital outlay,
it might be inclined to use a private operator rather
than borrow funds. This is strictly a psychological
effect, but nevertheless could be quite significant.
-114-
-------
Private Financing
Complexity of Application
The use of a private firm to construct, own,
and operate a municipal solid waste system is, in
reality, not a financing mechanism at all, since
the municipality does not haye to invest capital
as such. Nevertheless, it is useful to analyze
it as a financial option, since it clearly is an
alternative to municipal borrowing or general-
revenue financing.
In this context, the complexity associated with
the mechanism does not involve information require-
ments or external technical and economic consulting.
Rather, problems may develop in locating an acceptable
firm, negotiating a contract, overcoming public dis-
satisfaction with a proposed site, dealing with
public employees who may be displaced, or meeting
a host of other organizational/management issues.
There is some reason to believe, however, that
the use of this mechanism will actually result in
more technical and economic evaluation of any proposed
system. This analysis will generally not be performed
by the city or its consultants, but by the private
firm itself. The reason is obvious. If a private
firm is being operated for profit, and, in addition,
must compete with other firms for a system contract,
there is a strong incentive for efficient planning
and management. Unfortunately, there is little hard
evidence in this area since few disposal operations
have been financed and managed by private firms
(except the ownership of dump sites in some areas).
Ability to Raise Capital
Here, too, there is little evidence that can
be cited. Where disposal systems have been financed
by private owners, the system cost has rarely gone
above $1 million. This should not be construed
to mean that private firms could not raise much
larger amounts of investment capital.
-115-
-------
However, the ability of a private firm to raise cap-
ital is restricted by more constraints than would be
faced by a municipality.
This is simply because the risk associated
with mechanisms available to a private firm is
higher than that associated with a general obliga-
tion bond. This risk will be reflected, at a
minimum, in higher interest rates and, under certain
circumstances, the cost associated with the risk
would result in a total inability to raise the
necessary capital.
In summary, to date there has been only
limited experience with the use of private firms
to finance and operate solid waste disposal systems.
The private sector is becomina more interested in
this area, however. If financing mechanisms
involving both a private firm and a municipal govern-
ment prove viable, it is likely that more private
companies will become involved in the field.
Cost of Capital
Since municipalities are not raising capital
as such, this issue is not relevant to the evalua-
tion. Suffice it to say, however, that the cost of
capital to a private firm will undoubtedly be higher
than the subsidized cost to a municipality. This
higher cost will certainly be reflected in the system
charges.
However, there are other subsidies (e.g.,
depreciation, investment tax credits) which do
operate in favor of private firms ana which tend
to reduce operating charges. On balance, the
absolute cost effect is dependent on the specific
situation.
Constraints on Use
Private firms are not used more frequently to
finance solid waste disposal because of the legal
constraint that prevents many municipalities from
-116-
-------
signing long-term contracts. No firm could afford
to risk installation of capital equipment unless
it were sure that its revenues would continue for
a period long enough to insure capital recovery.
Negotiations between municipalities and private
contractors often break down over this point.
Other less important constraints that occas-
ionally arise in some municipalities involve the
potential displacement of city employees, and a
perceived risk of service interruptions. This
latter issue involves the problems that could arise
should a private firm be forced into bankruptcy.
Finally, there is the economic constraint that might
exist if a municipality wished to have a capital
intensive, technologically risky system installed
and the private firm could not obtain capital for
such a project.
Effect of Subsidy Level
As mentioned earlier, a municipality choosing
to use a private firm as an alternative capital
investment mechanism will not now receive any
direct federal subsidy to assist the capital forma-
tion process. In raising capital, then, the private
operator will have two disadvantages, in comparison
with a municipality issuing a general obligation
bond. The first is the higher interest rate that
must be paid because the interest payments received
by the lender are considered taxable income, whereas
the payments on a municipal bond are tax-exempt.
The second io a functibn of risk. It is virtually
impossible for any private firm to acquire invest-
ment capital with the same risk as would be associated
with funds raised by a general obligation bond. In
other words, a community's "full faith and credit"
clause, backed by unlimited ad valorem taxing power,
is better security than a private firm's net operating
revenue.
Since private firms must pay higher costs for
capital, they will probably install less capital
intensive systems than a municipality might choose
if it were to invest its own capital. In this con-
text, it is interesting to note that there are few,
if any, privately owned incinerators operating in
-117-
-------
the United States. Where private solid waste dis-
posal systems have been installed, they are almost
exclusively landfill—with a minimum of capital
equipment.
There is some reason to believe that a
municipality may be able to pass its federal sub-
sidy along to a private operator under certain
circumstances. This would be done, for example,
by issuing an industrial revenue bond, which essen-
tially permits a private firm to issue tax-free
bonds. It would then be much easier for a orivate
firm to acquire investment capital. This subject
will be discussed in greater detail later in the
report.
Disruptions in the Solid Waste System
A municipality's decision to use a private
firm rather than to finance its own solid waste
disposal system is itself an alteration in the pub-
lic/private mix.
-118-
-------
V. ORGANIZATIONAL ALTERNATIVES FOR FINANCING
.. AND. MANAGEMENT
In the competition for municipal or state
dollars, many approaches are used to secure funds
for solid waste services. This section will discuss
one such approach: the establishment of a special
organization to raise money to finance the service.
Not all institutional'forms involved in the field
of solid waste management will be considered.
Rather, discussion will be confined to those
organizations created solely to raise new, or
"seed," money, or to increase the level of funds
already used for solid waste management. Several
individual organizations will be examined as will
the reasons for their selection.
Decision-makers at the municipal or state
level can improve an existing service, or start a
new service, in two ways. First, they can raise
capital by working through the normal approval
process established by law, and can the.n assign the
capital and the new work to an existing municipal
department.
Second, they can develop a new organization to
provide the service, and can then meet the capital
requirements of the service through the new
organization; This method is normally more complex
than working through an established organization
because of the legal activities involved in forming
the organization; e.g., the selection of staff, the
development of administrative and operational
procedures, and planning and budgeting activities.
All this preparatory work must be completed before
the organization begins to provide service or invest
its capital. Despite the work involved, however,
many municipalities and states select this alternative.
They are motivated by reasons such as the constitutional
debt ceiling which would prohibit financing by the
municipality. Frequently, the requirement for voter
approval becomes an additional constraint because it
is time consuming and risky. Also, when municipalities
establish new organizations they gain the attention
and publicity that surround a new operation. On the
other hand, a new operation also suggests the possibility
of creating new jobs.
-119-
-------
The types of organization that have been created
expressly for financing, as well as management,
include the following:
. Public authorities.
. Private corporations.
. Non-profit public corporations.
. Multi-community cooperatives.
-120-
-------
Public Authority
Historically, authorities have been estab-
lished as a means of separating government enter-
prises that are commercial in nature from more
traditional government services. States and
cities have been using the authority form since
1945. At that time, rapid industrialization and
economic growth brought about a need for increased
public services. Since state and local government
debt ceilings made it difficult to expand serv-
ices, and since many of the new services were
revenue producing, it seemed more appropriate to
establish new organizations than to rely on
traditional government agences. Publicly-held
corporations had become, (in the late 1940's)
the dominant form of business organization. The
general operational effectiveness of the corpora-
tion was considered a desirable model for a
commercial type of government service. By the
1940's, nearly all states had passed enabling
legislation, and established the legal procedures
necessary for the formation of authorities.
Authorities have been defined as:
...corporate bodies authorized by
legislative action to function out-
side of the regular structure of
government in order to- finance and
construct and usually operate revenue
producing public enterprises.1
Considerations in the Formation of Authorities
Most municipalities establish an authority
to provide a revenue-generating service when con-
fronted with one or more of the following problems:
The constitutional debt ceiling
. prohibits financing by the
municipality.
Gaining voter approval for financ-
ing is either too time consuming or
too risky.
1 State Public Authorities, The Council of State
Governments (Lexington, Kentucky), July, 1970,
p. 2.
-121-
-------
Political activity related to the
service has hampered previous programs.
Multiple political e:titles will be
served by the authority.
Greater autonomy and freedom from
municipal budgetary and administrative
control will mean a more efficient
delivery of service.
The authority is well suited for financing and
managing solid waste services. The authority can
raise capital dollars from short- and long-term notes
and from revenue bonds. It cannot, in most states,
raise capital or operating dollars from taxes. With
the exception of Colorado, where a new law provides
certain types of authorities taxation powers, the
authority normally has no power to tax and cannot rely
on the tax base of a given political jurisdiction
unless officials of that jurisdiction allocate funds.
Therefore, the operating funds and a portion of the
capital funds, are raised by levying charges on the
users of the authority's service, even where the user
may be the municipality itself.
During our field research, two existing and one
proposed solid waste authorities were studied. Of the
two studied, one is primarily a financing vehicle; the
other has developed, financed, and managed an
incinerator.
In Pennsylvania special purpose activities which
generate revenue are traditionally financed through an
authority.1 When Harrisburg decided to invest $12 million
in an incinerator, its financial advisors suggested
that an authority be created. In this instance, the
authority is a "paper" organization established to issue
revenue bonds. It has no employees and no place of
business. The city leases the incinerator from the
authority, operates the facility, keeps the authority's
books, and pays its financial obligations.
Harrisburg's financial advisors, consulting
engineers and bond counsel told us that two factors
1 Interview with Mr. Benjamin Shoemaker III, C.C. Ceilings
& Co., November 16, 1972, Philadelphia, Pennsylvania.
-122-
-------
influenced their decision to finance solid waste
services through an authority: the city's debt ceiling
and doubts over'voter approval of the incineration
project. Their concern about the debt ceiling seems
unrealistic, since the remaining debt capacitv of the
city at the time of the bond issue was 62 percent.
This would have been reduced fco' 39 percent if the bond
had been a general obligation issue. Voter aporoval
for the project as a whole was passed by establish-
ing the authority, but three taxpayer suits were
filed which kept the incinerator project in the courts
for one year. When citizens do not have the opportunity
to influence a decision affecting their community
they often appeal to the courts.
The Incinerator Authority in Harrisburg does
not provide a revenue-generating service. Its ouroose
is to arrange for funds that are guaranteed and will
be paid for by the city. In essence the authority is
a mechanism to create a de facto general obligation
bond outside the normal g.o. process.
The Southeast Oakland Incinerator Authority in
suburban Detroit is quite different. Initially,
it was formed with a specific job to do, incinerate
and dispose of the refuse from fourteen communities.
The Authority provides several communities with a
disposal service that none of the communities could
have afforded individually. Furthermore, the
Authority's regional coverage solved the common
urban problem of limited availability of disposal
space.
To start service in Southeast Oakland County,
capital had to be raised to develop the facilitv.
The authority used regular revenue bonds, not the de
facto g.o. type used in Harrisburg. The Authority
has issued three such revenue bonds since its inception.
Bond payments are totally dependent on the charges for
service. The income is guaranteed by the commitment
of the fourteen communities to use the service. To
insure that each community has the opportunity to
voice its opinion on policy matters, a representative
from each community forms the Authority's Board of
Trustees. Ostensibly, service charges can be regulated
by the Board to cover any charges in capital and
operating costs.
-123-
-------
A third and quite different type of authority has
been developed in Colorado. At the urging of the
Municipal League, the state legislature passed an
enabling act which permittc . municipalities to form
regional service authorities. To create such an
authority, the largest county in an area must appoint
an "originating commission". This commission prepares
a voter resolution to go on the ballot. The voters
must approve the authority by a simple majority and
must select up to! sixteen services they wish the
authority to provide. One of the sixteen services can
be solid waste collection, processing and disposal.
i
The regional authority is granted the power of
taxation if voters approve a mill levy. With this
tax power, the authority can issue general obligation
and revenue bonds, can receive grants, use bank loans,
and share in the taxes of its member communities.
The authority also has the right to contract with .the
private sector for the provision of services.
This authority provides one unusual safe-
guard for its member communities. If one community
is dissatisfied with a service, it can vote on
whether or not the service should be continued.
If just one community rejects the service, it is
cancelled for all member communities. This puts the
authority under greater pressure to perform more
responsibly than the traditional authority.
The Denver region is interested in the authority
concept and will put the matter to a.vote in the
next election. It is not yet clear whether .there is
strong voter support for including solid waste as
one of the sixteen services to be provided by the
authority.
Observations
In summary, public authorities can provide a
useful management and financing alternative if an
area needs a special organiztion to provide solid waste
services. The objective of an authority is to establish
an organization to perform a given service and, in
most cases, generate sufficient income so that the
service can be self-supporting. The difference
between the Harrisburg and Southeastern Oakland County
-124-
-------
authorities is in their purpose. In Harrisburg,
the objective was to provide financing. In South-
eastern Oakland County, the objective was to provide
the service. The financing was a means to this
end.
The evaluation of authorities as a financing
vehicle is difficult, because, in most cases,
authorities are established to provide services.
Financing takes place only when the organization
needs major amounts of capital that it cannot raise
internally. The issuing of bonds and the acquiring of
bank loans are generally the same financial mechanisms as
used by any public body. Thus financing by an authority
is normally one of the many important activities in which
the organization is involved. However, authorities
can be evaluated in the light of how well they facilitate
the financing activity.
Financing through an authority is administratively
complex because the authority must be designed and
approved by another governmental body. The ability of
the authority to raise capital depends on the debt
provisions of its charter. Also, its ability to raise
capital will depend on the performance of its manage-
ment on day-to-day operation and on meeting all the
authority's financial obligations. The cost of capital
to an authority will depend on what type of debt
issue is used, plus how well the authority has performed.
Authorities are used in solid waste and there are
no important constraints to their use in this field.
Although authorities per se are not subsidized, their
debt issues are. Hence there is no particular positive
or negative monetary stimulus on authority formation.
Authorities, basically, should not provide any disruption
in solid waste systems.
Most states and many communities have experience
in using authorities, so the learning curve is not
steep or lengthy. Despite the potential advantages of
an authority, there is a danger that it can become
remote from government or public control. Separated
from the municipal bureaucracy, protected by a board of
directors, the authority can, and, in some cases, does,
become self-serving.
This is a general observation made of authorities by such
noted political scientists as James C. Charlesworth, James Q.
Wilson, Aaron Wildausky, to identify but a few. The author
made this observation also based on studies of over 100
municipal government operations.
-125-
-------
Private Corporations
Private corporations offer the community the most
dramatic financing opportunity, to "get out" of the
business altogether. In this light, many communities
pass complete financial and performance liability for
solid waste services to an outside contractor. The
contractor raises the capital, purchases the equipment
and operates the community's solid waste system.
Hence, the municipality is relieved of the need to
devote capital for solid waste facilities or equipment.
The community's financial responsibility is limited to
paying for the service through contract payments or
paying through direct charges to users.
If the municipality allows the private operator
to bill individual households and firms directly,
it can reduce the city budget. In addition, user
charges may achieve a more equitable distribution of
solid waste system costs.
Reliance on contractors, in theory, also provides
the greatest long-term flexibility. The community is
committed to a specific system only for the length of
the contract.
Considerations in User of the Private Sector
Several factors that influence a municipality to
turn to the private sector are:
. The cost of service is less than an
alternative approach.
. Political influence on the service is
minimized.
A user-charge system related to the amount of waste
generated is theoretically preferable, in an equity
sense, to funding the solid waste system from tax
receipts.
-126-
-------
. Municipal budget1 and municipal
bureaucracies are decreased.
. The quality of service is improved.
Contract Considerations
To secure a stable revenue base in solid waste
management, private firms usually prefer long-term
contracts (five years or more)2with the ability to
escalate charges as their costs increase. Most long-
term contracts have an escalator clause that is tied
to the area's price index. Cities, on the other
hand, seem to prefer contracts that coincide with
political terms.^ These terms typically range from
one to four years. They may also be constrained by
legal limits set on length of contract terms.
Contract fees usually fall into two categories:
the fixed fee, and the fixed fee with an escalator
clause. The length of the contract usually influences
the fee arrangement. One'year contracts normally use
a fixed fee, and longer-term contracts usually include
an escalation clause that allows the company to
make fee changes if they experience cost changes.
The contract generally provides the municipality
with power to set rates and regulate the performance
of the service.
1
Budget reductions are possible if users are charged
for service instead of having the city pay for the
service from a budget allocation. Further reductions
are possible if the city has employees in this service
who will be discharged.
Interview with Roger Ramsey and John Vanderveldt,
Browning-Ferris Industries, Inc., Houston, Texas,
December 13, 1972. Discussions with Combustion Engineer-
ing, American Thermogen, Combustion Equipment Associates,
Carborundup during March, 1973.
This is the concensus of opinion in the forty-five
cities visited during the study.
-127-
-------
Use of Private Sector
In Minneapolis, Minnesota, the city govern-
ment assisted 50 private haulers to form a private
corporation to collect approximately 60 percent
of the city's trash. Minneapolis also granted a
five-year contract to a second private firm, for
operation of two transfer stations and one landfill
site. All residential refuse must pass through the
two transfer stations to the disposal site. The
firm receives a per-ton rate from the city of
$4.65. This rate is fixed for the five-year period,
thus ensuring cost control. This creates risk for
both the city and the corporation. If costs
exceed the per-ton rate, the corporation is placed
in financial jeopardy. This will affect the service
provided.
When one firm is given a regional collection
contract, the private operator will often provide
the disposal services too. This is especially true
in semi-rural and rural areas, where land is
relatively plentiful and disposal site location is
less controversial than in densely populated urban
regions.
In Baldwin County, Alabama, a single private
company was able to negotiate a five-year contract
with the county to provide a sanitary landfill
operation. The firm charges a flat rate of $1.42
per ton, with a 20,000 ton per year guaranteed
minimum delivery clause. Collection in this rural
county is provided to 35 percent of the population
by an association of ten private haulers. The
remaining 65 percent either deliver to the disposal
site personally, use a landfill on their own
property or dispose of their trash illegally.
Before the late 1960's, firms providing
either collection or disposal services were almost
-128-
-------
always small and limited to operating in a few
communities. In the past few years, however,
several large national solid waste management
firms have developed. Mergers have accounted for
the growth of these firms. The two or three
largest have systematically purchased independent
scavenger firms in widely separated localities.
In so doing, they have inherited contracts already
in effect with municipal governments.
Even these large national firms have not
installed capital-intensive disposal systems.
They use only sanitary landfill for disposal, and
often own their own sites. Brief discussion with
principals in two of these firms has revealed two
reasons for this situation. First, landfill is
almost always the least expensive alternative.
Even if transportation over long distances is
required, it is usually cheaper to use a landfill.
Second, the technological risk associated with incin-
eration or resource recovery is so large that no
private operator can afford to innovate in this
area.
Financing Considerations ,
These major firms — no matter how sophisticated
their service — depend on standard corporate
financing techniques: internally-generated funds,
debt and equity. When a private firm secures a
municipal solid waste contract and requires finance,
the banking community generally studies several
features of the situation:
The capital structure of the firm.
The capacity of the city to pay for the
service.
The length, adequacy and soundness of the
contract.
The quality of company management.
The condition of the equipment to be used.
The political stability and administrative
practices of the municipality's local
system.
-129-
-------
There are disadvantages in the use of private
contractors. The most important is the loss of
control over the operation. This problem was
acute in Hot Springs, Arkansas, where poor
equipment, inconsistent service and constant street
litter characterized the private system. Hot
Springs is now attempting to regain control of its
system through purchase of new equipment to lease
to the contractor, ownership of the disposal site,
ownership of the processing system, plus increased
regulation of service frequency and quality.
Chicago was particularly concerned with its
capacity to guarantee service. City officials
believe that the city must exercise complete
control over the system if they are to provide
this guarantee.
In the cities visited during this study,
contracting for disposal is viewed with considerable
caution. If a contractor fails in business, or
cannot settle a price dispute with the city, the
closing of his site or processing facility can
leave the community with major problems. It
usually takes more time and more money to solve a
disposal problem than a collection problem.
Observations
Use of a private corporation enables the
municipality to transfer the economic and admin-
istrative burdens of solid waste management from
the city to the firm. The corporation takes on
the responsibility of raising capital. If the
city is dissatisfied with results, it can change
contractors.
The evaluation of private corporations as a
financing vehicle is actually an evaluation of the
ability of that corporation to raise capital to
finance a solid waste system. The complexity of
using corporations is mainly in the time required to
draft and agree on a contract. It becomes more
complex if a city's system must be discontinued
and the employees discharged or reassigned. The
ability to raise capital through a corporation
depends on the corporation's financial strength. It
is more difficult for a small firm like American
Thermogen to raise capital to construct an incinerator
than it is for a billion dollar firm like Combustion
-130-
-------
Engineering. Nearly any amount of capital for a
system can be raised by a large credit worthy
corporation.
There appears to be no constraint on the use of
corporations in this field. Corporations receive no
subsidy for work in this field unless they finance
their' facility with a tax-exempt industrial revenue
bond. This subsidy will encourage more corporate
activity and perhaps more capital intensive systems
because the cost of capital will be lower than the
corporation's normal debt issues.
The corporations should not disrupt any investment
or operational activities in solid waste, but rather
should be a force to increase programs.
-131-
-------
lion-Profit Public Corporations
The non-profit public corporation is similar in '
many respects to the authority as a means of financing
and managing a solid waste system. Using this form of
corporate body, the city can shift its financing re-
quirements to an organization outside the immediate
municipal bureaucracy.
The similarities between a non-profit public.
corporation and an authority include:
Financing outside government debt limits.
Avoidance of legal restrictions, such as the
need for voter approval.
. Coverage for more than one political jurisdic-
tion.
. Management flexibility.
Considerations in the Formation of a Non-Profit
Public Corporation
i
The major reasons for a community to create a non-
profit corporation rather than an authority to perform
solid waste services are ease of administrative and legal
approval and a long-term commercial interest in the service.
The administrative and legal hurdles are less formidable
and less formal than the formation procedures for an
authority. The non-profit corporation can be established
by the city or by a group of private individuals. The
important consideration is that the organization is tax-
exempt and can issue tax-exempt bonds. To gain tax-
exempt status, the corporation must satisfy the following
Internal Revenue Service criteria:
. The city council must approve the project and
accept the assets after bonds are paid.
The corporation must agree to give its assets
to the city after bonds are paid.
The city must provide all easements to the corp-
oration at no cost.
-132-
-------
. The Directors of the corporation must fee city
or state officials.
. The corporation must provide a public service.
The non-profit public corporation provides a less
risky means to test a commercial idea than does a
commercial operation. Using a tax-exempt bond issue,
the public corporation can raise capital more easily,
and at less cost, than could a private corporation
using a taxable issue for the same project. If the
service works effectively, the public corporation can
organize its next service as a profit-making corporation.
In Nashville, a non-profit public corporation was
formed to build an incinerator that could burn solid
waste and sell energy generated in the processing.
The venture is commercial in nature but it was formed
as a public non-profit corporation in.order to increase
the saleability of securities in the market. Without
'the power to tax and thus use general obligation bonds,
the most attractive issue for the non-profit corporation
is the revenue bond. For a new system operated by a
new company the revenue bond is the most reasonable
method to acquire the needed capital.
Observations
A municipality has more control over a non-profit
public corporation than it does over a profit-making
firm. In Nashville, the mayor and several other local
and state officials comprise the board of directors.
The non-profit corporation does not pay real estate
or federal taxes, and its capital financing can be
offered as tax-exempt.
The disadvantages of this type of financing and
management are that political influence may be exerted
and flexibility lost. Members of the board of directors
may take actions that are politically motivated, whereas
in an authority, the board is frequently comprised of
private citizens. The community may also lose flexi-
bility once the institution is established. It is
difficult to dismantle a public corporation even if
a better service is available to the community from
other sources.
-133-
-------
The evaluation of non-profit corporations as
a financing vehicle is quite similar to the evaluation
of authorities because the non-profit corporation is
established normally to provide services. Only when
large amounts of capital are needed does financing
take place. The establishment of the non-profit
corporation is a complex process. The organization
must be approved by another governmental body, and
a staff must be hired to do its work.
This study did not uncover any non-profit
corporations that were strictly "pass-through"
financing vehicles like the Harrisburg Incinerator
Authority.
The ability of the non-profit corporation to
raise capital depends on its ability to secure con-
tracts for its 'services, its performance of the
service as welPas any provisions in its charter
which limit the1type of debt or the amount of
debt. The cost :of capital to a non-profit corporation
will depend on tfhe type of debt issued and the per-
formance of the 'non-profit. In theory the cost of
capital to the non-profit corporation should reflect
the degree of risk perceived in realizing revenues
because it will not have the security of the full
faith and credit of a community behind it. Hence
there is incentive to make investments that are quite
certain to work technically and to insure that services
are covered, at least to the break-even point, by
contracts.
Non-profit corporations are not widely used in
solid waste, but there does not appear to be any con-
straint on their use. While non-profit corporations
are not subsidized, their debt issues are. Hence
there is no particular financial stimulus to form a
non-profit corporation because authorities, city
agencies and corporations (under present IRS rulings)
as well as non-profit corporation, can arrange tax
exempt financing.
The non-profit corporations should not provide
any disruptions in solid waste systems.
-134-
-------
Multi-Community Cooperatives
The multi-community cooperative is a system devel-
oped by one community to provide service to itself and
several other communities. Harrisburg, for example,
developed an incinerator with sufficient capacity to
handle sixteen surrounding communities in Dauphin Countv.
The purpose behind a multi-community cooperative is to
achieve economies of scale because equipment is in con-
stant use. It enables member communities to provide
services not otherwise financially possible.
For this type of regional service-, one city pro-
vides the leadership. The concept offers several at-
tractive features. It centralizes waste processing and
disposal, reduces the number of small, inefficient,
environmentally unsound systems operating in the area,
and offers options in solid waste handling not other-
wise available to member communities.
But there are also drawbacks for some member
communities:
. Loss of control over site locations.
Loss of control over charges for use of system.
Increased interest costs when the leading com-
munity is less credit-worthy than other members.
Loss of autonomy in solid waste systems
may expand to other government services.
In addition, many communities have long histories
of mutual distrust that make cooperation in a regional
effort difficult
There are also risks for the leadership community.
In the Harrisburg, Pennsylvania, and the Braintree, Mas-
sachusetts programs, the surrounding communities decided
not to take part in the project. In each case, the
sponsoring community is carrying an incinerator with a
capacity that greatly exceeds, its needs. This means
that the taxpayers in these communities are carrying
a financial burden originally, intended to be shared
with other communities. Residents will continue to
pay for the excess capacity until the surrounding
communities use the system.
-135-
-------
Observations
The multi-community approach, while not as popular
as other types of operations included in this study,
has sound application in solid waste management. First,
urban communities with no landfill area and with limited
opportunities for incineration would benefit from a
regional arrangement where the options are broader.
This approach enables one political jurisdiction to take
the lead, while contractually-bound supporting
communities indicate to the financial community that
the service will be used and sufficient revenues
generated.
The persistent problem in the multi-community
approach is where to locate the sites for the landfill,
the incinerator, or any major equipment. Disagreements
on this point often undermine potentially sound
regional schemes. This problem has occurred in New York
State, in Westchester County, in the area surrounding
Braintree, Massachusetts, in Memphis, Tennessee, and
Harrisburg, Pennsylvania.
The evaluation of the multi-community approach as
a financing mechanism is really an analysis of the
community who-will issue the debt in behalf of the
other communities. The complexity of organizing several
communities together is time consuming because each city
council must approve the concept and the working
agreements. The ability to raise capital will depend
on the lead community's debt capacity and financial
strength. When one community is raising capital for
itself and other communities, its debt capacity can
be strained. In Massachusetts, special legislation
providing for general obligation bonds outside the
municipal debt ceiling is available for any community
that desires it. The community must apply to the
state legislature to have an amendment to their
financing laws enabling this expansion of their debt
capacity. In one case, this activity required two months,
The cost of capital will depend on the community
issuing the debt if it is a general obligation* or it
will depend on the project if it is a revenue bond.
The constraints on use of the multi-community
approach are dependent on the willingness of independent
communities to work together and, in particular, to let
one community take a dominant role. There is no
-136-
-------
subsidy presently that would stimulate use of this
approach. The tax exempt financing available under
this approach is also available to individual
communities. This approach should not disrupt solid
waste systems, but should encourage more efficient
and better quality systems.
-137-
-------
State Activities in New Organizational Patterns
We have presented the four types of organization
used by municipalities for financing of solid waste
facilities and equipment. While these organizations
have been used exclusively by local governments it is
possible that states may also be able to use them.
The state of Vermont, for example, is considering
the construction and financing of regional solid waste
facilities. The state could establish its own organi-
zation, regional authorities, regional non-profit
corporations, and specific regional districts to be
served by private corporations. Whether Vermont will
actually move into construction and financing for
regional facilities is not yet known. This activity
has traditionally been the function of municipal gov-
ernment in the state. The legislature will act upon
this proposal during its current session.
The concept of state construction, financing,
and assistance in establishing operations is a sound
idea, particularly for a state with a sparse population
and no major cities (population 100,000 or more). The
state has a broader tax and revenue base than any com-
munity. It can use its greater financing power and
combine its financing requirements into a large issue
than can one municipality. Individual communities
benefit from the use of more technical skill and a
lower cost of capital.
In Florida, the state chose another path for
upgrading solid waste facilities. Brevard County
plans to construct two transfer stations, purchase a
shredder, and establish a landfill for the combined
cost of $7 million. With considerable foresight, the
county encouraged the state to pass a law in its be-
half five years ago requiring all waste generators in
the county to use the county's solid waste facilities.
This requirement provides a quarantee of waste volume
to the Brevard County operations and hence a predictable
revenue flow. From this base of revenue, Brevard County
will be able to use a revenue bond to finance the con-
struction of the new facilities if they decide this would
be effective.
In this case a state by enacting legislation, has
provided the basis for improvement of a local transfer,
processing, and disposal facility. The law guarantees
usage, which facilitates financing. The state determined
-138-
-------
that it was best to work through the existing county
government because the county has a broad geographic
spread and is a logical region for solid waste service.
When counties decide to combine to make service
more efficient, as in the Denver area, the state can
pass appropriate legislation and can establish a
separate organization to provide the service.
Summary
The establishment of separate organizations for
solid waste has been primarily a local government
effort. The communities have the solid waste problems
and have traditionally organized to handle their
problems. In Vermont, Colorado, and Florida, state
legislation and state activity provided local govern-
ments with alternatives that had previously not been
available.
Thus, organization for financing can be done at
the municipal or the state level. There is little
doubt that special organizational arrangements are
quite valuable for combining municipalities into
regional solid waste areas. The question of when
regional approaches are needed is best addressed by
the communities in that region or state. The
question of who should initiate regional approaches,
the municipality or the state, is best left to the
political decision-making process in the state.
-139-
-------
VI. FINANCIAL MECHANISMS/
ASSISTANCE PROGRAMS TO STIMULATE INVESTMENT
The results of this study indicate that most
communities have not found it difficult to obtain
funds for solid waste expenditures from capital
markets, even for relatively innovative systems.
Capital may be obtained in conjunction with other
municipal capital needs. There seems to be a
very efficient market for general obligation bonds,
and especially tailored revenue bonds. Funding may
also come from general revenues, or in the form
of loans fjffom banks or private firms. In short,
a community is almost always able to raise invest-
ment capital for solid waste systems.
It seems worthwhile to point out once again
that in raising capital funds, the nature of the
project for which money is to be used does not
necessarily determine success in the market.
Rather, it is the way in which the financing mechanism
structures the financial risk. The capital market
place is only concerned with the "price of money" or
interest rate, and the risk involved.
Nevertheless, there are two issues that deserve
attention. The first is specific: the risk of
investing in new technological systems. The second
is more general: the efficiency of the overall
municipal capital allocation process; and in particular
the trade-offs that are made among capital projects,
usually to the detriment of solid waste systems.
Research in both the public and private sectors
reveals that in most municipalities the capital
allocation process has short-changed the solid waste
system. This is not surprising: investment in solid
waste disposal has low visibility. Since most city
managers prefer to invest in projects that are in
the public eye, solid waste is usually low on the
list of priorities. A new hospital generates more
publicity and public approval than a sanitary
landfill.
-140-
-------
The federal government can, and often does,
play a significant role in the allocation process
of individual municipalities. Many current federal
programs are specifically designed to stimulate
municipal capital expenditures in certain "chosen"
areas. The question is whether a more direct
program for stimulating solid waste expenditures should
be established at the federal level. This is obviously
an important policy decision.
In the remainder of this chapter., several
financial mechanisms will be examined in order to
evaluate their potential for. use if such a program
should be deemed desirable. Many of these mechanisms
woul
-------
Administrative Complexity
What is the administrative process? What
controls are provided project management?
How does administrative complexity affect
the investment decision?
Equity
What biases are created by each subsidy?
Does a particular subsidy discriminate in
favor of urban versus rural communities, or
poor versus wealthy areas? How does the
subsidy affect communities with and without
systems?
-142-
-------
Grant Programs
One of the more traditional financial mechanisms
that could potentially be used to stimulate capital
investment in municipal solid waste systems is the
federal cash grant. Cash grants may be non-categor-
ical, as in revenue-sharing, or may be used to
subsidize specific aspects of capital and/or
operating expenditures.
In this section, only categorical capital grant
programs, funded by the federal or state government,
will be considered. These are programs which provide
cash transfer payments to municipal governments;
for use in financing specific capital investment
programs.
There are many ways to structure a grant
program. The simplest, perhaps, would involve the
government transferring to a municipality an amount
of money equal to a certain fraction of construction
and purchase costs of equipment and facilities,
assuming they meet certain criteria. In this case,
the municipality would not need to have approval
from a federal administrator before purchase or
construction, but would have to present evidence
that an acceptable installation had actually been
built. A more commonly used structure requires that
a federal administrator approve a proposed project
before funds are granted. In this situation, the
responsible agency would have the opportunity to
review, and perhaps to restructure, a municipal
project.
Both types of grant programs have advantages
and disadvantages. It is virtually impossible to
evaluate these or other grant structures without
first establishing the goals of the grant program.
For example, requiring prior approval would be
necessary if a successful program required inter-
municipality coordination. On the other hand, if
implementation speed is a high priority goal, the
simplest grant system would be preferred.
In this section, several examples of existing
governmental grant programs will be presented.
-143-
-------
Although there are hundreds of such examples, the
range of possibilities is covered in those selected
here. An evaluation of the advantages and dis-
advantages of each grant program will then be
presented. This discussion will focus on the
potential impact that a grant program might have on
municipal investment in solid waste processing and
disposal systems.
The grant programs discussed in this section
are:
. New York Environmental Quality Bond Act of 1972;
. Tennessee Annual Per Capita Grant;
. Federal Construction Grants: Water Treatment;
. Hill-Burton Grants.
-144-
-------
|New York Environmental Quality Bond Act of 1972
New York State, according to the terms of its
1972 Environmental Quality Bond Act, will invest
$1.15 billion in water, air, and land resource
development and protection programs. Of this amount,
$175 million is to be used to "help municipalities
bridge the dollar gap between current disposal
methods and resource recovery systems." Grants will
cover up to 50 percent of the capital cost of
proposed systems, and applicants will be judged on
the following criteria:
. Amount of solid waste generated.
. Extent of resource recovery, and market
potential for recycled products.
. Urgency of the air/water pollution prob-
lems associated with current solid waste
systems.
. Environmental soundness of the proposed
program.
. Regional "fit" of community's resource
recovery proposal.
. Potential for direct relationships with
other public facilities; e.g., treating
sludge from a sewage treatment plant.
Communities which are too small to support resource
recovery operations can apply for 25 percent grants
towards the purchase of "equipment or devices needed
for environmentally sound land disposal systems."
The goal of this grant program is to foster the
development of resource recovery systems. In this
regard, however, it is interesting to note that the
information circular distributed by the state in
support of the proposed bond issue states that
"... it is not known which recycling processes will
prove to be the most economical and efficient for a
given municipality..." It further states that
"[communities] can choose from a number of resource
-145-
-------
recovery systems being developed or come up with a
system of their own."
Obviously, the structure of this program requires
a great deal of -interaction between the grantor and
the grantee. The state has provided a specific goal
(resource recovery systems) and a set of criteria
by which it plans to judge specific plans. Distribu-
tion of funds depends on the soundness of each
municipality's plan.
As of this writing, no grants for solid waste
have yet been made. In fact/ no actual proposals
have been submitted since not many months have elapsed
since the voters approved the state bonds in 1972.
Evaluation of this program, therefore/ will not be
possible for several years. On the basis of the
program structure alone, however, it appears that:
. The program should result in significant
capital investment, but the approval process
may cause long delays. Many communities
may defer all major solid waste investment
until more information on "acceptable"
systems is available.
. Capital intensive resource recovery systems
will be constructed at the expense of
other -methods.
Efficient system planning and management
will be a direct function of the state's
review capabilities.
The program will be very expensive, and
difficult to administer.
The program is weighted in favor of urban
areas that can plan and support resource
recovery systems.
Municipalities will be less likely to
consider private firms.
-14 6--
-------
Tennessee Annual Per Capita Grant
In 1970, the state of Tennessee passed a law
that prohibited open dumping and required a state
permit for any proposed disposal method. In
conjunction with this permit system, the state
appropriated funds so that it could provide an
incentive for compliance with the law. The
incentive is in the form of a state grant, paid
e'ach year to all municipalities that have been
given up-to-date disposal permits. The amount of
the grant is a function of the number of people that
are being served by the solid waste disposal system.
It is currently set at $.75 per capita, but the
state solid waste office has indicated that an
increase to $1.00 per capita is expected to pass
the current session of the state general assembly.
The amount is intended to cover approximately
one-half of a community's disposal costs, and the
use of funds is unrestricted within the solid waste
disposal area.
This type of program structure minimizes the
differences between grant applicants, since it does
not aim to encourage construction of a specific
type of facility. Each municipality is free to
evaluate its own problems and to arrive at the
most acceptable solution. Once this has been
accomplished, receipt of funds is only dependent on
continued operation of an environmentally-sound
system. Of course, there is no requirement that
the funds be spent specifically on solid waste
capital investment. The funds could be used to meet
a revenue bond interest and principal payment
schedule, however, and thus would serve to guarantee
a certain level of revenue flow.
Although the program has only been in operation
a short time, municipalities in the state have an
excellent compliance record with the permit system.
State solid waste officials attribute this in large
part to the grant program. The program has other
characteristics as well.
. It has been relatively effective in
stimulating investments in solid waste
systems.
-147-
-------
It does not encourage the development of
particular types of systems, has a neutral
effect on public/private mix, and offers no
incentive to municipalities to invest in
new technology.
It offers no special incentive for efficient
and effective management.
It will probably not be difficult to
administer or implement.
It has no preference between urban and
rural systems.
Money goes to systems that were already
in compliance as well as to those which
have rai.sed their standards. It is thus
less efficiently used than if aimed only
at non-compliers.
-148-
-------
Federal Construction Grants: Water Treatment
For many years, the federal government has had
programs under which grant funds were awarded to
municipalities to assist with the construction of
water treatment plants. As of April 30, 1970,
federal grants of about $1.4 billion had been
disbursed under these programs. State and local
governments and interstate commissions receiving
these grants had constructed about 9,600 waste
treatment projects at a total estimated cost of $6
billion.
To attempt an evaluation of a series of
programs of this magnitude is far beyond the scope
of this report, and fortunately, program evaluations
'have already been prepared by governmental agencies,
private consultants, and congressional committees.
These reports indicate that the programs have had
both successes and shortcomings.
For example, the U.S. General Accounting
Office (GAO) has made several reports to Congress to
the effect that the programs have helped to abate
water pollution. Without the construction of the
projects funded by the grants, according to the
GAO, water pollution problems would have been far
more severe in the areas served than they are.
However, the GAO also points out several short-
comings . !
. Many waste treatment facilities have been
constructed in waterways where major
polluters locatnd nearby -- industrial and
municipal — have continued to discharge
untreated and inadequately treated waste.
. The grants have been awarded on a "shotgun"
basis: i.e., on a first-come-first-served
basis, or as a function of readiness to
proceed. i
Report to the Congress. In_ U.S. General Accounting Office.
Examination into the effectiveness of the construction
grant program for abating, controlling and preventing water
pollution. Washington, Comptroller General of the United
States, Nov. 3, 1969. 164 p.
-149-
-------
No comprehensive programs have been designed
to achieve specific objectives on individual
waterways.•
A project dollar limitation was part of the
program. This served as a negative incentive
for the construction of regional facilities.
Operation and maintenance problems have been
widespread for many years in plants
constructed with federal funds. As a result,
these plants have operated at low levels of
efficiency.
Many of the funds awarded to municipalities
were used for the construction of facilities
to treat substantial quantities of industrial
wastes.
All of these problems are characteristic of
governmental grant programs. In order to carry on
programs that do not have these deficiencies,
great care must be taken to devise plans that fulfill
concrete goals. Praising a program because without
it things would be worse is at best misleading, and
at worst a sad commentary on the nation's capacity
to solve its (environmental problems.
•*-
To attempt a reasonable analysis of the
effectiveness^ of any program would require that the
costs of alternative solutions be investigated.
For example, tin the case of water treatment plants,
one alternative to the construction grants program
would have been a program similar to the Tennessee
"compliance" .grant. Perhaps the same level of
federal funding would have produced a greater level
of municipal investment, had it included a compliance
incentive. Before a comprehensive analysis can be
made, however, it is necessary to establish the goals
of a particular program. This question is especially
relevant in the area of solid waste, where capital
investment may not be synonymous with
environmentally sound solid waste systems.
-150-
-------
Hill-Burton Grant Programs
The Hill-Burton Program was established to assist
states and municipalities in providing hospitals, public
health centers, and out-patient and other health facili-
ties. Two forms of assistance are provided: direct
grants and guaranteed loans.
The federal share of an approved project may
be as much as two-thirds of total eligible costs.
With the exception of public health centers, land
is not considered an. eligible item, for federal
assistance. Some $3.8 billion of Hill-Burton grants
have been distributed to nearly 11,000 hospitals
and other kinds of health facilities since 1946.
State and local governments, hospital districts
or authorities, and private non-profit organizations
are eligible for funding. Funds are allocated among
the states on the basis of population and per capita
income. Private profit-making corporations are not
eligible. Those regions with high population and
low per capita income receive the highest priorities
since it is the intent of the program to reduce
the costs of health care for those who need it
the most.
Grants are made after the state Hill-Burton
agency and the regional HEW office make detailed
reviews of applications. Applications include plans
and specifications, which are reviewed in depth by
the Hill-Burton technical staff for technical
adequacy and conformance to regional plans. The
applications for a grant must be filed before
construction commences.
Discussions with the Massachusetts Hill-Burton
office indicate that no attempt is made to discriminate
among the types of agencies that submit applications.
In other words, a private, non-profit organization
is as likely to be funded as a public authority.
In allocating funds to specific projects, the
Hill-Burton office attempts to provide relatively
thin coverage to a number of projects, rather than
full funding for a smaller number of facilities.
-151-
-------
As in most federal programs, a great deal of
disagreement exists about its effectiveness.
Critics have pointed to half-empty hospitals, in
smaller cities, built by local officials as show
places and as an inducement to local doctors.
Also, like most programs, once started it develops
a constituency of vested interests that are
resistant to change. The recent federal budget,
which provided a zero budget for the program, noted
that there is currently an oversupply of hospitals
with too many empty beds. For example, the average
hospital occupancy rate is down to 73 percent,
whereas 85 percent is considered optimum in big
hospitals.
Furthermore, the General Accounting Office
concluded in review of the program that:
. Projects were often conceived in a crisis
atmosphere, with little or no attention
given to advance analysis of specific
health care needs.
. Cost estimates were deficient and alternative
sources of funds were not identified early
in the planning process. :
. Projects were delayed by federal review
procedures, with the result an increase in
construction costs.
. Grants stimulated construction of high-cost
hospital facilities but did not encourage
lower-cost interim or convalescent care
facilities, or more efficient or more
innovative forms of medical care.
. Projects were funded inefficiently, without
attention to national health care needs by
state and region.
-152-
-------
Evaluation
Direct Investment Encouraged
Dollar for dollar, there is little doubt that
a capital grant program will be more effective in
stimulating municipalities to invest in a solid waste
system than any other type of assistance program.
This is true because when federal (or state)
grant funds are available, a municipality believes
it can get "something for nothing." In this context,
it will undoubtedly attempt to get the largest grant
it can reasonably expect.
Construction grant programs provide a cash payment
equal to some fraction of total program cost. Thus,
a dollar of municipal capital expenditure will buy a
proportionately greater amount of investment. Generally
speaking, a construction grant program will generate
more absolute dollar investment than would have been
the case if the municipality was not subsidized.
To understand this, imagine that a municipality
has decided to invest in a solid waste processing
and disposal system. The actual amount to be
invested can be thought of as being an amount that
will equate the marginal benefits to be obtained
with the marginal cost. In other words, capital
will be invested up to the point at which an extra
dollar investment would be expected to yield less
than a dollar's worth of output over the years.
Now add a construction grant program. For each
dollar invested by a municipality, perhaps .two
dollars will be invested in the solid waste system
if it is a matching grant program. The municipality's
effective cost has been cut in half. To put it
another way, the benefits for every dollar invested
have been doubled. Under these conditions, the
total capital invested in a project will increase.
If the municipality reduces its own dollar investment
by less than one-half, the total investment in
solid waste capital will rise.
However, there is another side to the issue
of direct investment. This involves timing. From
a theoretical point of view, a grant program should
-153-
-------
not influence the speed with which a municipality
implements investment in a project. Yet much
experience with grant progrars indicates that the
very presence of the program does cause long delays
and continual postponements in municipal project
initiation. There seem to be several reasons for this.
First, every region close to the point of making
an investment will wish to take advantage of the grant
program. Thus, as soon as they suspect that a
federal grant program is underway, they will delay
planned projects until funds are available. This
may take several years, of course. For example, the
General Accounting Office in an evaluative report on
the waste water construction grant program concluded
that federal funding had not been adequate to meet
the demands of municipalities. Most areas refused
to start their project until they had received a
grant, resulting in the delay of many construction
grants.
Second, grant programs usually require applicants
to submit extensive engineering, technical, financial
and social data to justify the project. These admini-
strative procedures not only increase direct costs, but
also result in delays in project implementation. Delays
occur on both sides—in preparation of the grant
application and subsequently in its review and modi-
fication .when necessary.
One of the most unfortunate aspects of the
timing problem is that construction and land costs
tend to rise over time. When the project is finally
funded, the facility may be no larger than initially
planned but significantly more expensive. What also
may happen if inflation has not been accurately
predicted is that the planned system may have to be
cut back during construction. When this happens,
the reduction in expenditures may reduce the usefulness
of the system. Often when construction has started
there is little choice as to what aspects of a
particular project can be dropped. Careful preliminary
planning goes out the window.
To summarize: federal capital construction
grants may prove effective in stimulating dollar
investment in solid waste systems, but the impact of
the factors described above should be carefully
weighed against this effectiveness.
-154-
-------
Type of System Encouraged
One of the main disadvantages of a capital
construction grant program is that an artificial
incentive is created that affects the choice of a
system. Because the municipality's share of federal
funds is a function of the capital cost of the proposed
system, it is obvious that an incentive to build
capital intensive systems exists.
This characteristic might manifest itself in
the solid waste area by causing an increase in the
number of incinerators installed. A community will
be able to build an incinerator for perhaps 50 percent
of its "real value." Since a typical incinerator
might be expected to last for 20 years, a community
would favor this long-term investment over equipment
that might have to be replaced within a shorter period.
Depending on how a construction grant program is
structured, the subsidy may discourage regional solid
waste solutions. If grants are awarded with no
requirement for a regional approach, there will be
a tendency for each individual municipality to construct
its own facility. This tendency already exists and
will only be augmented by the subsidy since it would
either reduce the municipal capital investment
required or, conversely, enable them to purchase a
larger or more elaborate system with the same invest-
ment. This particular effect was characteristic of
the Hill Burton grant program. It .was found that
the existence of the large capital construction subsidy
encouraged many small towns to build their own
hospitals when it was clear that a regional solution
would have been more economically efficient. Of course,
this does not necessarily have to happen. If grants
are awarded so that only regional approaches are
acceptable, as is the case with the water treatment
facility grant program, the subsidy could be used to
expressly encourage regionalization.
Another serious disadvantage of a construction
grant program is the incentive created to invest in
systems that are too large for one municipality.
A municipality may be anticipating either population
growth or an increase in waste generation per capita.
It would like to construct a system large enough to
handle the expected load now, when federal funds are
available. It is very difficult for an administering
-155-
-------
agency to control this tendency. Planning an
efficient system, in terms of future needs, is
difficult at best. There is no way to eliminate
a municipality's bias. This problem is also
aggravated by the fee structure used by the engineering
profession. When fees are a function of dollars
spent, there is certainly a strong motivation to design
the biggest and most expensive system that can be
justified for an area. In fact, it has already been
pointed out that most recently installed capital
intensive systems seem far too large for the area
served. A construction grant program may augment
this tendency.
It is also clear that the availability of funds
from a construction grant program deters a
municipality from utilizing a private firm for
solid waste processing and disposal. Unless there
were a grant program available to private firms,
municipalities using a private contractor would
realize increased costs compared to a grant supported
system. The municipality would be passing up
potential grant funds unless it built the facility
and then leased it to a private concern for operations.
There is one advantage to a construction grant
program: a community is more likely to invest in
new technology when federal funds are available. The
risk to the community is reduced to the extent that
the project is funded with outside capital. Of course,
it is also possible to tailor a grant program so
that certain kinds of systems will be built. The New
York State Grant Program, aimed at resource recovery,
is a good example of this level of system specificity.
This approach has a major disadvantage, however. Many
areas may decide to install the type of system specified
in a grant program simply to get their share of grant
funds, although the system is not suited to their
needs. Thus, a disincentive for an efficient
system is actually created.
Planning and Management
Construction grant programs stimulate system plan-
ning at the local level more than other state or
federal assistance programs. The incentive is
essentially the grant itself. In order to qualify for
most programs, it is usually necessary to submit a formal
proposal that spells out the municipality's problems
-156-
-------
in detail and tells how the proposed system Will deal
with them. Unfortunately, however, more effort may
be expended to sell the project to the controlling
agency than is spent on hard analysis.
0
Because of the artificial incentives that
exist for specific capital intensive systems, the
municipality is inclined to pick the system and then
attempt to justify its choice. If the controlling
agency wishes to "push" one system, it will actually
encourage the type of "analysis" in which the
conclusions are pre-ordained.
It is rather difficult to comment on the
incentives established for systems management once
the construction phase of a grant program is over.
There is some evidence that poor management and
inadequate maintenance are characteristic of projects
that have been financed with federal grants. It is
cheaper for a community to build a system with excess
capacity and to provide minimum maintenance, than to
construct an optimized system and follow up with
adequate maintenance. For example, one study of
federal transportation subsidies found that the optimal
lifetime of a bus in Chicago and Cleveland was cut in .
half by the existence of a 66% purchase grant program.
Much undoubtedly depends on the specific system and
the opportunities for capacity-operating expense trade-
offs. An example of this problem in solid waste might
be an incinerator with enough excess capacity to allow
a furnace to be held in stand-by. Rather than provide
regular maintenance, the municipality might wait until
a furnace breakdown occurs and then switch to the
stand-by furnace while repairs were made. There are
many other examples.
Administrative Complexity
A construction grant program is undoubtedly the
federal assistance program that requires the most
complex administrative control system. Most federal
program structures would require the preparation and
review of elaborate system proposals. If a regional,
Tye, W. B. The capital grant as a subsidy device: the case
study of urban mass transportation. Ir± The economics of
Federal subsidy programs; a compendium of papers, pt. 6.
Transportation subsidies. Washington, U.S. Government
Printing Office, 1973. p.796-826.
-157-
-------
state or national goal is to be encouraged, the way
that individual systems interact must carefully be
evaluated. It is in this respect that many grant
programs have been considered lacking.
Further, unless grant funds are unlimited it
must be expected that a queue of project proposals
will develop. When this occurs, unless an efficient
method of project ranking is available, the allocation
of funds may be made on a first-come-first-served
basis. Certainly this method of allocation is inconsistent
with efficient resource allocation.
Equity
Two kinds of equity issues are associated with
a construction grant program. The first is the
distinction that must be made between urban or semi-
urban systems, on the one hand, and rural systems,
on the other. For solid waste disposal systems, it
seems clear that only urban or semi-urban areas would
benefit from a facilities and equipment construction
grant program. Only in these areas are capital
intensive systems ever needed. The per capita cost
of a solid waste system is a function of the density
of the area to be served. So federal assistance per
capita will clearly be higher for densely populated
urban areas than for smaller, or rural, communities.
The second equity issue centers around the
practice of giving assistance to communities which
have done little or nothing to comply with federal
and state laws. In this instance, municipalities
that have already installed environmentally sound
systems are penalized. Of course, this type of
grant program may be favored, since more money can
be directed to problem areas than in other types of
programs.
-158-
-------
Credit Banks and Loans
Another method for stimulating municipal ex-
penditures in the field .o.f solid waste,is the use
a governmental, or quasi-governmental,!intermediary1
to do the financing. The intermediary (e.g., a
credit bank) collects the debt requirements of a
number of communities and goes into the market with
one large issue. After the bonds or securities have
been sold, the intermediary distributes fund5 to
the municipalities.
The major advantage to the communities involved
is that the interest rate is lower for participants
than it would be if each municipality issued its
own bonds. An additional advantage is the avail-
ability of financing to municipalities who, through
lack of experience, are not familiar with the
methods of raising investment capital.
The average interest rate is lower when one
agency holds a portfolio of bonds because the risk
is less than for a single community's issue. By
being able to issue a large number of bonds at
each maturity, the credity bank's issue will appeal
to a wide spectrum of potential investors. Large
institutional investors usually do not like to buy
just a few bonds of one maturity. Of course, each
municipality will also realize a savings in trans-
action costs, since it will not need the services of
an individual bond underwriter.
The intermediary that performs the financing
can be a state agency, a federal agency, a regional agency, or
a quasi-public agency like the Federal national Mortgage " "
Association. Bond banks, credit banks, and loan programs are
the most prominent sources of this type of financing'.
In this section, several different institu-
tional approaches to this form of financing will be
described. Each financing method will be evaluated
in terms of its usefulness in providing funds for
solid waste facilities and equipment.
The credit banks and loan programs to be
discussed as examples of this concept are:
-159-
-------
. Vermont Bond Bank.
. New York Environmental Facilities Corporation.
. Federal National Mortgage Association.
. Environmental Finance Authority (Department
of the Treasury).
. Urban Development Bank.
. Farmers Home Loan Program.
This is not an exhaustive list of financial
intermediaries, but it represents the major types.
An analysis of the accomplishments of each program
will focus on the type of investment stimulation
each brings to the solid waste field.
-160-
-------
Vermont Bond Bank
The Vermont Bond Bank was established to pool
municipal debt issues from a number of small com-
munities. Generally, the debt issue of small
municipalities had been of interest only to local
banks. The bond bank combines local issues into a
single state-sponsored issue. The bonds are backed
by the tax power of the local government, and by
a reserve fund maintained by the bond bank. Although
state bank bonds are not the obligations of the state
of Vermont, the state legislature has the power to
fund any deficits in the debt reserve fund. This
legislative power'provides a "good faith," or moral,
guarantee for the bonds, and most investment bankers
believe that deficits would be covered by the state.
In December 1970, the Vermont Bond Bank issued
$46 million in general obligation bonds, the
proceeds of which were used to purchase the securi-
ties of 48 small towns and local districts. Half.
of these municipalities were borrowing $500,000 or
less. The interest cost for the issue, compared
with average interest costs for fifteen individual comm-
unity issues in Vermont for the same time period,
represented a savings -of 50 basis points, or about
$3 million over the life of the issue.1
The Vermont Bond Bank has three primary
characteristics.
. Its issues provide a cost-of-capital
saving for all participating munici-
palities.
. It provides capital formation for
small towns with limited access to, or
knowledge of, capital sources.
. It is completely neutral in the program
investment of the funds; .it does not en-
courage or discourage investments in
solid waste.
Results of bond sales. Daily Bond Buyer, 214(23516):23,
Dec. 22, 1970.
-161-
-------
Figure III-l
STATE BOND BANK
(Vermont, New York)
f
Br-
State Bond
Bank Authority
Tax-Free
Authority Backed
Bonds
I WUilGi I
«. . ^Municipalities!
•Also Participate
5.0. Bonds(Sold at Tax-Free Rates to Bond Banks)
Municipality
System/
Facility
Supplier of
Capital Equipment
Tax-Free
Bond Market
Taxable Bond Market
-162-
-------
New York Environmental Facilities Corporation
The New York State Environmental Facilities
Corporation provides financial, technical, construc-
tion, and managerial services to communities needing
help with their solid waste systems. The corporation
can issue its own revenue bonds, or can secure bank
notes which enable it to purchase the bonds issued
by municipalities. The municipality must pledge
its full faith and credit in support of the bonds
purchased by the Corporation. Neither the state
of New York nor the communities themselves specifi-
cally guarantee the bonds issued by the corporation.
There does exist an implicit understanding that the
state will back the bonds by making up deficiencies
in the debt reserve fund.
The EFC has assisted in the design, construction,
financing, and management of three projects. They
have also provided technical consulting services to
many communities. These services are paid for by
the community, at a rate negotiated with EFC which is
generally in line with the rates charged by private
consulting firms. In this area, the EFC is in
competition with consulting engineers and other legal
and financial firms in the private sector. Frequently,
the EFC contracts with corporations for these services.
Pope, Evans, and Robbins, a firm of consulting
engineers, designed the landfill/recreation area for
Brookhaven, Long Island.
EFC has not issued any bonds nor has it ever
purchased any municipal bond issues. Its major
method of financing is the use of short-term notes
which are "rolled-over" to provide medium-term
financing. These notes provide financing for a
specific solid waste or other type of environmental
project in a given community. They are arranged by
EFC's director of finance.
The EFC has established a network of banking
relationships throughout the state and can place
notes in any one of a number of banks. A note is
placed with a particular bank after the EFC has
called several to determine the most favorable
interest rate obtainable for the community in question.
In raising money for a large project like the Brookhaven
landfill, most banks are only willing to accept
-163-
-------
short term notes issued in anticipation of a
later bond issue.
The complete package of services provided
by the EFC is impressive. If a community accepts
EFC's approach, the corporation will take over the
solid waste problem, solve it, and manage the
operation. Furthermore, the service carries the
implicit support of the state.
One advantage EFC has over a general bond
bank like Vermont's is its specialized program for
environmental systems. Its financial and service
activities are available to assist a community in
the complete solution of an environmental problem.
The very existence of the EFC should stimulate
communities to initiate projects and improvements
in solid2waste facilities and equipment.
C.}
The EFC selects those projects it is interested
in supporting so state control can be exacted through
this organization, with its specialized knowledge
in solid waste and other environmental concerns,
the EFC is well suited to invest capital wisely and
more efficiently than an all-purpose bond bank.
Although the EFC provides Financial and
technical support to a community, it is not a lender
of last resort. If several communities desired
assistance from EFC, and the corporation did not have
the funds or services to serve all requests, the
marginal projects would be excluded.
In review, EFC has some very interesting
features.
. It stimulates investment of environ-
mental facilities through its promotional
work, technical advice, and financing.
. It is neutral in stimulating expendi-
tures; solid waste is not preferred
over other environmental investments.
. It can organize and provide technical and
financial services not otherwise avail-
able to smaller communities.
-164-
-------
Through the range of its services,
it is likely to encourage efficient
use of municipal resources.
-165-
-------
Federal National Mortgage Asaociation (FNMA)
The Federal National Mortgage Association is
a public corporation, wholly owned by holders of
its common stock. Chartered in 1938, FNMA provides
support for the secondary mortgage market by buying
and selling residential mortgages originated by
mortgage lenders. Its major purpose is to broaden
the market for mortgages by enabling primary
mortgage makers to clear portions of their holdings
periodically, thus making a continuous supply of
money available for mortgages.
FNMA provides added liquidity to the mortgage
market in two ways: (1) by purchases and sales of
existing mortgages, and (2) through efforts to
standardize mortgage documents to aid development
of a national mortgage market. The first function
is similar in intent to the function of a market-
maker in securities, with an important exception.
FNMA buys much more than it sells, due to its concern
over adverse effects on interest rates of large-
scale mortgage selling. FNMA has engaged in heavy
selling in only one of the last eight years. Thus,
FNMA does not really provide a full secondary mar-
ket mechanism.
In the four years since the 1968 Housing Act
transformed FNMA from a governmental agency into a
private corporation, the association has tripled
in size. As a public corporation, whose stock
is traded on the New York Stock Exchange, FNMA
has been regarded as a very volatile ("hot") stock,
primarily because of the tremendous financial
leverage allowed the corporation. The allowable
ratio of debt to equity, recently raised to 25-1,
far exceeds thatjof any other major financial com-
pany in the U.S. The major source of its profits
is the difference between the long-term mortgage
interest rates it charges and the low interest
rates it enjoys in the capital market (low because
it has the borrowing status of a government agency).
Breckenfeld, G. Nobody pours it like Fannie Mae. Fortune
Magazine, 85(6):88, June 1972.
2Breckenfeld, Nobody pours it like Fannie Mae.
-166-
-------
It is interesting to note that its borrowing status
is a market perception only, because PUMA'a notes
and debentures are not actually guaranteed. To
further enhance the FNMA credit rating, Congress
authorized the corporation to borrow up to $2.25
billion from the U.S. Treasury in an emergency.
Although there are similarities between the
problems of the housing mortgage market and the
municipal securities market, there are significant
differences which render an FNMA-type mechanism
impractical and unlikely to receive legislative
support, either for municipal bonds in general or
solid waste financing in particular.
The major source of profit which contributes
to FNMA1s "swinging" image and growing public sup-
port is not available with municipal securities.
If an FNMA-type organization were to purchase
municipal securities at tax-exempt interest rates,
as opposed to housing mortgage rates, the Spread
between interest received and paid out would vanish
and quite likely result in a loss.
In review, the FNMA "concept" may be assessed
in the following manner, in terms of its applica-
bility for solid waste:
. FNMA purchases debt from primary holders
of debt and not directly from debtors;
hence it is a market-maker rather than
a credit bank.
. The concept, then, only applies to the
municipal bond market. This market is
well organized institutionally. It has
primary and secondary markets and has
substantial new-issue dollar volume
(over $22 billion in general obligation
and revenue bonds in 1972). The insti*
tutions have a known capacity for mar-
ket making.
. The adaptation of the FNMA concept to
solid waste would require a cash subsidy
to cover losses, or expenses not covered
when purchasing municipals with yields
that are lower than or equal to the
FNMA cost of capital.
-167-
-------
FNMA does not serve the same function
as a credit bank, thus the concept is not
applicable in that role and the market
in municipal bonds has proven capacity
to do what the FNMA can do.
If the goal is stimulation of solid
waste investment, or greater market access
for solid waste municipal bonds, the
FNMA concept does not provide the
best mechanism for achieving this end.
-168-
-------
' Environmental Financing Authority (Department
of the Treasury)
The Environmental Financing Authority/ created
by the Federal Water Pollution Control Act of 1972,
is a federal refinancing mechanism to assist states
or municipalities with the financing of the non-
federal share of waste treatment works. With certain
stipulations, the authority is empowered to purchase
obligations of states or municipalities at interest
rates which approximate current market yields
on Baa municipal bonds.
The Authority is envisioned as a "lender of
last resort." It exists to assist communities who
cannot obtain long-term funds at reasonable interest
rates. Acceptable projects are those which are
eligible for federal financial assistance under the
Federal Water Pollution Control Act. Before any
commitment is made by the Authority to a state or
municipality, the administrator of the EPA must:
(1) certify th,at the community is unable to obtain
credit on reasonable terms; (2) approve the project
as eligible under the Federal Water Pollution Con-
trol Act; and (3) agree to guarantee timely payment
of principal and interest on the obligation.
Although the Authority is still in the develop-
ment stage, officials have stated that interest
charges will vary with the market at the Baa rate.
It is expected that approximately 20-25 percent of
federally-approved waste treatment facilities will
be refinanced through the Authority.
To finance its operation, the Authority, with
the approval of the Secretary of the Treasury,
may issue bonds at taxable rates. Losses, resulting
from purchasing at tax-free rates and selling at
taxable rates, are made up from the U.S. Treasury.
Under the proposed Federal Financing Bank Act
(S.3001), a Federal Financing Bank would be established
to purchase the obligations of federal agencies, such
as the Environmental Financing Authority. This would
relieve the Authority of taking its securities to
the market place. The Federal Financing Bank would
provide a coordinating function among all federal
-169-
-------
agencies, to facilitate refinancing at the lowest
possible costs. The Bank would be empowered to
issue its own obligations in order to cover pur-
chases from the participating federal agencies.
The EFA concept is better suited to municipal
solid waste financing than other refinancing
mechanisms, primarily because it is designed to
help only those communities which cannot get
financial assistance from any other source. This
places maximum responsibility on individual
municipalities to finance their own projects/ and
results in more efficient decisions relating to
individual systems. (See Figure III-2 for a
generalized flow diagram of the EFA.)
The main characteristics of the EFA in the •
Department of the Treasury can be summarized as
follows:
. It stimulates investment in environ-
mental facilities by insuring municipal-
ities of access to capital for environ-
mental projects.
. EPA will provide a review and certifica-
tion process prior to EFA financing
thus providing a greater likelihood
of sound investment; and
. It supports projects in smaller, more
"credit-risky" municipalities, thus
providing disincentives toward more
efficient regional projects.
-170-
-------
ENVIRONMENTAL FINANCING AUTHORITY/
FEDERAL FINANCING BANK
f- """""1
I Other Federal)
L_ _'^tJ£T£?-£.s—_J
T ' Authority Bonds
! ! (Sold at
i i Tax-Free
Federal
Finnnring
Rates)
Environmental
Financing
Authority
Treasury-Type
Bonds (Taxable
Rates)
G.O. Bonds (Sold at Tax-Free
Rates) and Evidence of Financial
Hardship
Municipality
System/
Facility
Suppliers of
Equipment
Taxable Bond Market
-171-
-------
I
1 Urban Development Bank
The Urban Development Bank (URBANK), as pro-
posed in July, 1968, would be a non-federal corpora-
tion owned by states and cities. Urbank would issue
taxable bonds backed by the full faith and credit of
the U.S. Government and would use the proceeds to
make loans to states and municipalities. These loans
would be made at one tax-exempt rate, thus encouraging
communities with lower than average credit to apply.
An annual appropriation from the U.S. Treasury would
make up the capital loss the corporation sustains by
lending at a lower rate than it borrows. In addition,
Urbank would provide technical and planning assistance,
and perhaps investment banking services, to some communit-
ies. Fees charged for these services would be used
to cover operating costs. (See Figure III-3 for
a generalized flow diagram of the URBANK financing
mechanism.)
URBANK would meet a broad range of municipal
financing needs and would thus provide capital for
major investments in any municipal program area.
Although URBANK is an interesting concept,
a review of its services reveals the following
limitations, in terms of its applicability . ._ ,.w .,
to solid waste:
The subsidy provided by URBANK is non-categorical,
There is no impact on the municipal capital
allocation process.
URBANK1s low cost of capital will appeal
to poorly credit-rated municipalities.
It may tend to encourage.capital inten-
sive investments and to discourage regional
projects.
To the extent that URBANK stimulates
capital intensive projects, it is
likely to create operating problems
of a technical and financial nature
for poorly-managed communities.
-172-
-------
URBAN DEVELOPMENT BANK (URBANK)
Treasury-Type
Bonds
(Taxable
Rates)
URBANK
G.O. Bonds (Sold at Tax-Free Rates)
Municipality
Systcr./
Facility
Suppliar s:
Solid '.•:e.s^-
Svsrf-i
Tax-Free
Bond Market
Taxable Kond Market
-173-
-------
[Farmers' Home Loan Program
The Farmers' Home Administration1 makes loans
and grants for the construction and/or improvement
of water and waste disposal systems which primarily
serve farmers, ranchers, farm tenants, and other
rural residents. In this section, the discussion
will concentrate on the loan program which
constitutes 72 percent of total fiscal year 1972
disbursements.
Eligibility for this program is limited to
municipalities with less than 5,500 residents, or
quasi-public bodies which serve residents of these
towns.
The loans are repayable over periods up to
40 years, with annual interest not to exceed 5 percent.
There were 1,327 loans made in fiscal year 1972,
totalling $261,703,930.
The loan program has the following features
that can apply to solid waste:
. Small municipalities have access to
capital at low interest cost.
. The Farmers' Home Loan Program stimulates
investment in waste disposal for small
communities and encourages regional
arrangements.
. The application and award process is not
more difficult and time-consuming than,
for example, a revenue bond issue.
. The loan program does not encourage
extensive analysis, nor do small
municipalities have the ability to
perform sound analyses.
At the time of this writing, the 1974 federal budget
contains no appropriations for this program.
-174-
-------
Evaluation
Credit banks and loan programs are analyzed
together because they perform similar services -for
eligible municipalities. The community turns its
request for funds over to the credit bank or loan
agency, and this intermediary raises funds that are
distributed to the municipalities. The municipality
never directly enters the market nor does it examine
alternative financial mechanisms. The intermediary
performs this function in behalf of all participating
communities.
Direct Investment Encouraged
The credit banks, and loan programs of this type,
provide a direct subsidy to municipalities. In all
cases small-sized municipalities are likely to acquire
lower interest costs for their project, hence
encouraging more program investment. However, the
incentive,to invest is not directed to any specific
program area. In the case of the Vermont Bond Bank
or URBANK, the incentive is spread across the full
range of municipal services. Solid waste does not
have a higher, or lower, priority than any other
municipal program.
The situation is somewhat different in EPC,
EFA, and Farmers' Home Loan Program. The subsidy
(in the form of lower interest costs) is directed
specifically to environmental projects. Thus, competition
for funds is reduced, although some still exists.
Solid waste investments will be a direct function
of their priority (versus air, water, and other
environmental needs) in a given political jurisdiction.
It should be noted that the pooling of projects
does not always guarantee a lower interest rate for
all participating municipalities. For example,
large and wealthy communities like Westchester County
in New York may issue their own debt at an interest
rate equal .to, or less than, the rate of an EFC
revenue bond. The Vermont Bond Bank and EFC do not
have the full-faith-and-credit backing of their
respective states, while a high quality community
issuing general obligation bonds does have this added
security.
-175-
-------
Type of System Encouraged
The subsidy level provided by credit banks and
loan programs is so small as to have very little
impact on municipal solid waste investment. However,
among the various types of credit banks and loan
programs, those that provide a project screening and
review process may encourage better system planning
at the local level.
It is also unlikely that credit bank or loan
programs will directly affect the public/private mix
in solid waste. A municipality must first decide
whether it prefers a public or private system.
During this deliberation, it is unlikely that an
interest savings of .5 percent of 1 percent would be
the major incentive to shift from a private system
to a public system.
It seems more likely that once a community
decides that a public system better meets its needs,
the use of a credit bank is then viewed as a simpler
and less costly way of raising funds.
Finally, the credit bank or loan programs would
not have any particular effect on designing and
building efficient capacity systems or for stimulating
investment in new technology. Capacity decisions
(from the field survey) are dependent more on
population projections and other community usage than
on incremental dollar cost of per ton added caoacity.
Also, the subsidy level is too small to significantly
reduce the risk of experimental technology.
Planning and Management
Credit banks and loan programs, in and of them-
selves, do not provide incentives for sound planning
and management. On the other hand, if a particular
subsidy mechanism provides planning assistance in
addition to reducing the cost of capital, a community's
planning process will be enhanced. Of course,
technical assistance could be provided in the
-176-
-------
absence of either a credit bank or loan program.
Essentially, the financial subsidy provided by these
programs is too small to appreciably influence the
quality of the management process.
Administrative Complexity
A straight loan program like Farmers1 Home Loan
Program offers some advantages if ease of administration
is the most important goal. When a community determines
its need for capital, it applies for a loan. Within
30 to 90 days,, it will have the money. Beyond a
preliminary screening, the municipality need expect
little intervention in the management of the project,
unless payments are not made. Farmers' Home Loan
Program legal and analytical activities are minimal.
Credit banks involve a little more administrative
complexity. When a municipality desires to work
through a credit bank, it must wait until other
communities have a need for a bond issue. The time
it takes for a credit bank to collect enough debt
issues to warrant a bank bond issue ranges from a few
months to a year. Whatever the time, it is out of the
municipality's control.
The actual time needed to process the request
for issue is minimal; it is the time required to
pool a sufficient number of requests to make a
viable bond issue that is the procedural albatross.
The amount of direction given to the individual
community after the bond is issued is minimal. A
schedule of payments is set up, and onlv if payments
are missed will the credit bank become actively
involved with the community.
-177-
-------
EFC will become more involved with -he project
and with community payment if it manages the project.
But, this service activity is in addition to
financing. The financing itself does not prescribe
this form of control.
Equity
The workings of credit bank programs tdnd to
avoid any form of discrimination in terms of pref-
erence toward certain size cities, or urban versu£
rural areas, or municipalities with systems or
municipalities without systems.
The credit bank enables small communities to
pool their capital needs, so obviously the concept
works in their favor. In fact, the Vermont Bond
Bank stresses this point. In New York State»
with its mixture of large and small communities
that are rich and poor, urban and rural, the EFC
does not appear to prefer any particular type
of community. ,
The only>form of bias is towards municipalities
that require equipment-intensive programs. Communit-
ies wanting to finance landfills are not likely to
use the credit bank, simply because pay-as-you-go
can generate the needed cash. The interest subsidy
provided by a credit bank tends to favor the com-
munity that needs a more capital intensive solution.
In practice, this form of inequity appears to be
very minor. The Vermont Bond Bank experience
points out that very small communities need to use,
and do use, the services offered by a bond bank.
-178-
-------
Interest Subsidies and Loan Guarantees
A third set of mechanisms that could be used
to encourage municipal investment in solid waste
are interest subsidies and loan guarantees. Since
they have similar characteristics, they will be
treated together. Loan guarantees
are designed to reduce the risk of default to the
lender, and, as a result, to lower the interest rate
to the borrower. An interest subsidy, obviously,
lowers the effective interest rate to the borrower
more directly.
There are five generic forms of interest
subsidies that can be used to stimulate municipal
investment. Two of these have been discussed in
the credit bank section. One is the direct loan at
below-market interest rates (e.g., Farm Home Adminis-
tration loans, which are available to all small
communities regardless of risk). The second is
the type of program which makes loans to municipali-
ties having difficulty getting capital because of
credit problems (e.g., EPA). This section will
focus on the three remaining interest-subsidy options.
First, the subsidy can take the form of a
simple cash payment from the government to either
the lender(s) or to the municipality. The cash
payments may be equal to part or all of the interest
charges. Control over project selection may be
achieved by requiring the borrower to submit his
capital program plans prior to authorization of the
subsidy. An example of a cash payment interest
subsidy is the interest reduction payment program
administered by the Department of Housing and Urban
Development.
A second form of subsidy is provided by the
government when it guarantees all loans made to
municipalities. This form of subsidy has less impact
than direct cash payments. Here, the effect is
to bring interest rates charged to municipalities
to the level of equivalent-term, tax-free government
securities. It is doubtful that rates would adjust
by more than 1 percent and, in the case of Aa
rated municipalities, perhaps .5 percent, at most.
-179-
-------
Finally, the interest subsidy may take the
form of a fund to insure lenders against default.
One or both parties contribute to such a fund. If
premiums are set sufficiently high to cover all
settled claims, the net effect on interest rates
is similar to that of a loan guarantee.
Many variations are possible in the design
of interest subsidies, under these three generic
forms. This section will discuss three representa-
tive examples of the interest subsidies. Each
subsidy program will be evaluated in terms of its
usefulness in the financing of solid waste facili-
ties and equipment.
The subsidy programs to be discussed are:
. Municipal Capital Market Expansion Act (S.3215);
. Government National Mortgage Association; and th<
,. Hill Burton Program.
-180-
-------
I
''Municipal Capital Market Expansion Act (S.3215)
In February 1972,. this bill was introduced in
Congress to provide a federal interest subsidy to
any state or municipality choosing to issue taxable1
securities. To offset the higher cost of these
securities (compared to tax-exempt bonds), the U.S.
Treasury would make a direct cash payment to the
issuer equal to one-third of the interest cost.
Thus, a municipality could choose to issue a
taxable or tax-exempt bond, depending on which
offered the lowest cost of capital. The additional
tax revenues realized by the federal government from
the issuance of the taxable securities would be
used to cover the costs of the subsidy.
Under this program, the subsidy rate of
33-1/3 percent is designed to bring taxable bond
interest rates equal to those on tax-exempt bonds.
However, supporters of this bill estimate that
additional federal tax revenues could produce a
net gain for the Treasury. This could be transferred
to the states and municipalities in the form of
increased subsidies. Whether or not this gain is
realized will depend upon the average marginal tax
bracket of those investors who switch from tax-exempt
to taxable securities.
The overall objective of this legislation,
as stated in the Senate Report No. 92-836, is to im-
prove the municipal bond market in four ways:
. to expand the market for municipal bonds in
order to attract funds required by state
and local governments in years ahead,
. to reduce the amount of cyclical instability
in the market occasioned by periodic credit
shortages,
. to increase the cost-effectiveness of the
Federal subsidy, and
. to provide a comprehensive alternative to
the proliferation of Federal credit programs
without increasing Federal control over local
decision-makina.
U.S. Congress. Senate. Municipal Capital Market Expansion
Act. S.3215, 92d Cong., 2d sess., June 6, 1972. [Washington,
U.S. Government Printing Office.] p.2.
-181-
-------
Although this bill provides for a federal
interest subsidy in the form of direct cash pay-
ments, its main effect is the removal of the tax-
exempt subsidy to bond buyers. At any rate,
from a review of the bill it appears that:
. The interest subsidy provision is in-
tended to restore the cost of municipal
capital at the level of tax-exempt
bonds; thus municipalities would be in
no better or worse a position than they
are now. Municipalities are given no
new incentives to make investments.
. The subsidy is non-categorical/ hence
it will not benefit solid waste directly.
-182-
-------
Municipal Capital Market Expansion Act
Alternative Sub-
sidy direct to
taxable bond
buyers to en-
courage to buy
tax-free inunici-
Fcderal Treasury
Interest Subsidy
(33-1/3% of Taxable Rate)
Municipality
System/
Facility
r
Supplier of
Solid Waste
System
Taxable
Bonds
Tax-Free
Bond Market
Taxable Bond Market
-183-
-------
Government National Mortgage Association (GNMA)
The Government National Mortgage Association
(GNMA) is a wholly-owned government corporation
within the Department of Housing and Urban Develop-
ment (HUD). It was formed in early 1970, to
attract additional capital to the home mortgage
market. GNMA enables private securities dealers to
purchase individual home mortgages and to package
these mortgages into guaranteed securities, attrac-
tive for resale to individual investors. The law
enables GNMA to place the full faith and credit
of the federal government behind the principal
and interest of the mortgaged-backed securities.
The mortgages themselves are already in-
sured or guaranteed becasue each "pool" consists only
of FHA or VA mortgages. Mortgages roust be in-
sured or guaranteed to qualify for the program.
This program was established to broaden the
housing mortgage market by attracting investors
who wished to invest directly in mortgages, but
had no other convenient means of doing so. Private
dealers provide the refinancing mechanism in this
program, with support from the GNMA guarantee.
The "mortgage-backed" securities issued by private
dealers are known as "pass-through" securities,
enabling investors to receive a direct pro-rate
share of all monthly principal and interest pay-
ments made to the "mortgage pool." A "pool" must
have a minimum value of $2,000,000 to qualify for
GNMA backing.
Since early 1970, when the program began, more
than $4.3 billion of pass-throughs have been floated.
As recently as June 1972, they were carrying the
highest return of any actively traded, full-faith ^
government obligation, with a yield of 7.15 percent.
The GNMA concept is primarily one of
broadening the mortgage market to enable the partici-
pation of the individual investor. The , value of this
concept to solid waste is limited because a well"
Breckenfeld, G. Nobody pours it like Fannie Mae. Fortune
Magazine. 85(6) :86-89,136,140,145-147, June 1972.
-184-
-------
organized market for municipal bonds already exists,
that includes individual investors.
-185-
-------
Hill Burton Loans and Loan Guarantees
In 1970, HEW began a direct loan and mortgage
loan program to augment assistance provided to states
under the Hill-Burton Grant program. The loans
have the same purpose as the grants; namely, to
provide health care facilities to regions needing
construction and modernization of facilities. State
and local governments, hospital districts, and
authorities are eligible for direct loans; private
non-profit organizations are eligible for mortgage
loan guarantees.
The holders of federally-guaranteed mortgage
loans are paid direct cash subsidies sufficient to
lower the interest rate by 3 percent. Direct loan
borrowers will automatically receive the lower rate,
calculated at 3 percent less than the market rate.
In fiscal year 1972, $170,000,000 was obligated
under this program and an estimated $605,000,000
will be obligated in fiscal year 1973.
Commitments are made prior to construction
and the loan terms are not to exceed twenty-five
years.
To date, this program seems to have the
same weaknesses ad the' Rill-Burton tSrartt prog?afti. ' '
A review of the program reveals that:
. Project planning is inadequate, with
little attention given to needs
analysis.
. Cost estimates are deficient.
. Below-market interest rate loans give
applicants little incentive to examine
alternative sources of financing.
-186-
-------
I, .
Evaluation
Direct Investment Encouraged
Interest subsidies and loan guarantees will
stimulate investment as long as the capital is at
an effective interest rate that is less than that
of the municipality's general debt. The level of
investment stimulated will be a direct function of
(1) the level of .interest subsidy and (2) the
markets' perception of the project risk.
A loan guarantee, on the other hand, is
limited somewhat in its effect, because once the
guarantee is made, the interest subsidy is estab-
lished. For communities with "high-grade" bond
ratings, the guarantee will not represent much of
a subsidy, perhaps less than 25 basis points.
Since an interest subsidy can be set at
whatever level is necessary to stimulate investment,
it can clearly be far more effective than a loan
guarantee.
For example, a loan guarantee providing full
faith and credit backing for solid waste investments
would be more effective in reducing the interest
rate for Ba municipalities than Aa communities. If
one assumes that Ba municipalities are more likely
to be rural areas with small populations, the invest-
ment stimulus is for these municipalities rather
than larger, more credit worthy communities. The
benefits then tend to accrue to communities that do
not have the most severe solid waste problems.
On the other hand, an interest subsidy pro-
gram that provides a percentage interest reduction,
like the Municipal Capital Market Expansion &ct, will
distribute the benefits more evenly.
An interest subsidy tends to stimulate capi-
tal intensive solutions. For example, an interest
subsidy may push communities attempting to choose
between an incineration and a landfill toward the
more capital intensive investment. Of course, it
is generally true that any capital subsidy encourages
greater capital investment, hence more capital in-
tensive projects.
-187-
-------
To be effective in the field of solid waste,
an interest subsidy or a loan guarantee must be
available solely for solid waste projects. The
Municipal Capital Market Expansion Act, as proposed,
will do very little for solid waste. It affects
solid waste investments only in that it affects
municipal investment in general. In general, an
interest subsidy would be far less effective as an
investment stimulant than a grant program. An
interest subsidy that provides a greater interest
rate savings than a credit bank will offer a greater
stimulus to investment than a credit bank.
Type of System Encouraged
Interest subsidies and loan guarantees can be
expected to generate investment in capital inten-
sive systems, as do any capital subsidies. Unlike
a grant program, which could be designed to en-
courage any community to invest in capital inten-
sive solutions, an interest subsidy would only
influence investment decisions in those communities
which are already on the verge of installing capital
intensive facilities.
This type of subsidy would do little to pro-
mote investment in new technology systems. An
interest subsidy would have to be designated
specifically for new technology investments to
make any difference. Otherwise, it is neutral on
new versus existing technology. Given the operating
risks of new technology in solid waste, an interest
subsidy would do nothing to overcome municipalities '
hesitance to support innovation. It is doubtful
that this type of subsidy could significantly
reduce the overall risk associated with a new
technology project.
If an interest subsidy or loan guarantee
could be applied to any solid waste bond issue, then
there would be a slight tendency for municipalities
to build systems somewhat larger than necessary.
This might happen simply because of the reduction
in cost of capital to the community. Any subsidy
which makes it easier for individual communities
to raise capital will reduce the incentive toward
a regional approach. This will create inefficiencies
-188-
-------
in some areas. This could be avoided if intensive
project review procedures were established, as for
Hill-Burton subsidy awards. But this would increase
administrative costs. Judging from programs such
as Hill-Burton, the review process does not nec-
essarily increase management efficiency.
Finally, to the extent that this type of sub-
sidy reduces the cost of capital for a municipality
but not a private company, it obviously discriminates
against the latter. As it stands, however, many
municipalities are inclined to perform their own
solid waste services simply because of the differences
that already exist in cost of capital between the
two.
•r • r •
Planning and Management
One of the arguments made against the use of
loan guarantees and interest subsidies is that,
without costly project review procedures, there
is no incentive for applicants to improve the
quality of project evaluations. Because the sub-
sidy is so readily attainable, as in Hill-Burton,
the investment is made in more capital intensive
projects, which often turn out to be oversized,
or which have proportionately higher operating
costs. If this occurs, the manager discovers that
without operating subsidies, he cannot afford to
maintain the system after it is built.
From the Harrisburg and Braintree cases, it
can be observed that municipal decision-makers may
invest in technically risky, oversized systems even
without subsidies. These experiences underline the
thought that subsidies can provide incentives for
a risk taking investment at a time when a cautious
approach to new technology is needed.
Although an interest subsidy does not stimulate
analysis during the planning process, it could be
expected to provide incentives for better project
management than would a grants program. This is
true because the municipality is still liable for
all of the bond principal payments, and perhaps
some portion of the interest. A grant reduces
this liability, and thus removes some of the incen-
tive for good management. i
-189-
-------
Administrative Complexity
The administrative complexity of a subsidy
program depends largely on the machinery of the
review process. If there is extensive project
review before a subsidy is granted, the process
involves a bureaucracy, hence increased complexity
and an annual cost that generally is in the millions.
A subsidy program does not need such complex
review procedures if it is a flat rate, or is based on
a formula, and is available to all municipalities
or to all capital projects (e.g., the S.3215 bill).
Here, administrative simplicity reduces administra-
tive cost, but, at the same time, foresakes project
review and control over ongoing operations.
Since solid waste has traditionally been
handled by local governments, or their contractors,
project control by a state or federal agency is
out of the question, unless hundreds of new solid
waste specialists are added to the subsidizing
agency's staff.
Equity
As mentioned earlier, a loan guarantee program
would discriminate in favor of smaller, rural com-
munities. These communities frequently have lower
bond ratings than larger cities, or, no rating at
all. Thus, full faith and credit backing from the
government would have a significant impact on the
risk premiums associated with their bonds. In
contrast, the incremental risk reduction on bonds
issued by the larger municipalities would be slight.
A direct interest subsidy for solid waste
projects may be either neutral or discriminatory.
For example, if the subsidy were designed to reduce
the net interest rate to a fixed percentage, (e.g.,
a rate equivalent to a Baa rated bond), communities
with higher ratings would be subsidizing those with
ratings lower than Baa. If on the other hand, all
-190-
-------
communities were to receive a fixed-percent interest
reduction on any solid waste bond issue, regardless
of their effective interest rating, the subsidy
would be essentially neutral.
Even in the latter situation, however, any
community which did not issue a solid waste bond
would, in effect, be subsidizing those that did.
Thus, one could argue that most communities would
be inclined to issue bonds, rather than depend
on pay-as-you-go financing, to take advantage of
the subsidy.
-191-
-------
CASE STUDIES
-193-
Preceding pagesblank
-------
-194-
-------
EXPLANATION
The following thirty-eight case studies were prepared
as source data for the report. The cases are sequenced
alphabetically within three categories, cities, counties
and regional systems, and states, and each is organized as
follows:
. introduction and key features
. solid waste system background
. recent developments
. financing
. observations
To the extent possible, the write-ups follow a parallel
development, with primary focus on the description of the
capital formation process. The majority of the cases
cover specific cities or communities. However, in several
areas where there was a high degree of similarity between
community solid waste practices, "state" cases were
prepared.
On the immediately following pages are five case
summary tables. The first is a general summary of
pertinent facts about each case. The remaining four list
the cases according to selected variables.
1. by population
2. by financial mechanism used
3. by organizational form
4. by processing/disposal system type.
Preceding page blank
-------
CASE SUMMARY INFORMATION - CI.NCKM.
Location
Allegheny
County and
Pittsburg,
Pennsylvania*
(Regional)
Arbuckle
Regional
Development
Authority,
Oklahoma
Atlanta,
Georgia*
Baldwin
County,
Alabama
Brain tree,
Massachusetts
Brevard
County,
Florida*
Brookhaven,
New York
B reward
County,
Florida
Cheyenne,
Wyoming
Colorado
DalCalb
County,
Georgia
Denver,
Colorado
Des Hoinea,
Iowa
Great Falls,
Montana
Harnsburg,
Pennsylvania
Hot Springs,
Arkansas
Idaho
Kansas City,
Missouri •
Knoxville,
Tennessee
Maiden ,
Massachusetts*
(Regional
System)
Memphis,
Tennessee
Minneapolis,
Minnesota
Nashville,
Tennessee
Population
Size
1,654,263
It, 500
497,421
59,382
36,000
230,000
235,000
620,000
40,000
2,210,000
414,000
515,000
282,330
60,091
73,000
35,000
713,000
507,000
174,587
58,000
(1,000.000
estimate)
624,000
430,000
448,000
Refuse Tonnaqo
Generated
Per Day***
2.480
20-30
1,000
(estimate)
76
90-135
COO
690
(estimate)
1,200
(estimate)
laO
5,857
1,330
575
750
(estimate)
ino
140
(estimate)
90
1,400
(estimate)
1,600
(estimate)
480
100-150
(2,000 TPD
estimate)
2,000
(estimate)
510
1,200
Trans for/Processing/
Disposal Equipment
Landfill
Transfer Station
Landfill
Unknown
Landfill
Incinerator
Shredding and
landfllling
Landfill
Incinerator
Shredder
Open Dump
Landfill
Shredding and
Landfllling
Transfer sta-
tion
Landfill
Landfill
Shredding and
Landfllling
Incineration
Incinerators
Landfill
Landfill
Landfill
Transfer Station
Incinerator
Landfill
Landfill
Transfer Station
Incinerator
Size
(Tons For
Bay'
Unknown
Unknown
Unknown
40-50
240
600
1,000
800
500
—
"
2,000
600
Unknown
Unknown
560
'20
100
—
unknown
Unknown
750-800
1,650
Unknown
Unknown
Unknown
720
Ruccnt Solid
Waste System
InVVfltlMMtt
4,000.000
110,000
2,000,000
27,000
2,750,000
6,520,000
250,000
Unknown
2,600,000
500,000
Hone
None
921,000
281,000
~
2,000,000
686,000
12.500,080
1,100,000
None
8,450,000
975,000
425,000
16,000,000
Unknown
925,000
16,500,000
financial
Mechanism
General Obliga-
tion oond/Prl-
vate Financing
Farmers Home
Administration
esfOiUI
Revenue Bond
Current Revenue
General Obliga-
tion Bond
Revenue Bond
EPA Grant
Bank Loan
Revenue Bonds
Private Capital
—
~
General Obliga-
tion Bond
Current Revenue
Revenue Bond
iti.soo.oao)/
Par! Passu Bond
($500,000)
Bank Loan
Revenue Bond
Revenue Bonds
—
General Obliga-
tion Bond
General Obliga-
tion Bond
Current Revenue /
General Obliga-
tion Bonds
Private Capital
Revenue Bond
System Mdnaqt-nunt
Organisational
Fora
County
Regional Author-
ity
City
Private
Town
County
Hew York State
Environmental
Facilities
Corporation (non-
profit public
corporation)
County
Private
City
--
County
City
Regionel Author-
ity
City
City/Authority
City
~
Prlvate
City
Private
City
Private
Non-Prof It Public
Corporation
•Potential systems not yot implemented.
••Partially implemented system.
•••Calculated on the bavin of a em day week.
-------
CASE SUMMARY •INroMWTIOM - UCNCML
lOMTZNUni
Locat ion
New Orleans,
Inuiaiana*
New York.
New York *
Orange County,
Florida
Portland,
Oregon
(Regional)
Sacramento
County ,
California
St. Louis,
Missouri
San Diego
County ,
California •
Saugus ,
Massachusetts*
(Regional
System)
Seattle,
Washington
S.E.Oakland
County ,
Michigan
Ventura County,
California
Vermont*
Washington*
Weber County,
Utah
Wyoming
Population
Si ce
591,471
8.000,000
344,000
182,019
(800.000)
810.000
572,000
1,500.000
25,000
(1,000,000
eatlmata)
511,000
160,000
181,000
444,712
1,400,000
120,000
112,416
Refuse Tonnage
Generated
Per Day***
2.000
26,000
TOO
(eetloate)
7SO (estimate)
(1.600 estimate)
1,600
(estimate)
1,000
2.000
50-75
(2000 TPD
estimate)
1,000
810
1,200
i.eoo
(estimate)
10,850
(estimate)
250
664 •
Trans for/Process ing/
Disposal Kquitiaont
Resource Recovery
System
Incinerator and
Dump
Incinerator
Landfills
Landfill
Transfer Stations*
Landfill
Landfill
Transfer Station
Transfer Station*
Incinerator
Utility Boiler
Pyrolysls
Incinerator
Landfill
Transfer Station
inolaerater
Transfer Station
Landfill
Resource Recovery
Landfill
Landfill
Transfer Stations
Incinerator
Expansion Incin-
erator
Open Dunp
Sin
(Tons Por
Day)
1,000
(estimate)
1.000
(estimate)
7,000
Unknown
Unknown
Unknown
Unknown
1,000
120
(estimate)
50-75
1,000
<00
200
1.200
unknown
2.000
600
1.800
unknown
•00
Unknown
Unknown
100
150
—
Recent Solid
Haito System
Investment
None!
70.000,000
1.700.000
143,000
C71- '71)
968,000
968,000
1.370.000
3, 100, 000
4.000,000
10.000,000
820,000
3.700,000
1,400,000
1.500,000
1.150,000
Unknown
—
487,000
624,000
Hone
Financial
Mechanism
Federal Grant or
Private Capital
Qonaral Revenue '
Bonds
•avenue Bond
Current Revenue
Currant Revenue
161 U.S. Air
Porcsj
84t Current
••venue
General Obliga-
tion Bond
Federal Grant/
General Obliga-
tion Bond/Private
Capital
751 Federal Grant
25*. Current Rev-
enue
Private Capital
Current Revenue
Revenue Bonds/
Current Revenue
3« Federal Grant
*7» Current Rev-
enue, including
Revenue Sharing
State Bond Bank/
Current Revenue
State Grants/
Other
Current Revenue
58* U.S. Dept. of
Defense
42% Current Revonui
Including Rewanui
Sharing
—
'•torn Manaiji-Bcnt
Ixganiiatlonal
Form
Clty/Prlvato
City
County
City
County
County
City
Public Utility
County
Private
City
Authority
County
State/towns
--
County
—
•Potential systems not yet inplenanted.
••Partially implemented system.
••Calculated on the basis of a six day week.
-------
CASE SUMMARY BY POPULATION
r
•.)-5U,COO
Arouckle Regional
Development
Authority, Okla-
homa
Braintree,
Cheyenne, Wyoming
Hot Springs,
Arkansas
Saugus , Massachu-
setts (Regional
Population -
1,000,000)
50, 'JO'j -100,000
BalcWiu County,
Alabama
Great Falls,
Montana
Ilarrisburg, Penn-
sylvania
Maiden, Massachu-
setts (Regional
Population -
1,000,000)
100 ,000-500,000
Atlanta, Georgia
Brevard County,
Florida
Brookhaven, New
York
DcKalb County,
Georgia.
Des Moines, Iowa
Knoxville, Tenn-
essee
Minneapolis,
Minnesota
Nashville, Tenn-
essee
Orange County,
Florida
Portland, Oregon
(Regional Popu-
lation - 800,000)
S.E. Oakland
County, Michigan
Ventura County,
California
Vermont
Weber County,
Utah
500,000-1,000,000
Broward County,
Florida
Denver, Colorado
Idaho
Kansas City,
Missouri
Memphis, Tennessee
New Orleans, Louis-
iana
Sacramento County,
California
St. Louis, Missouri
Seattle, Washington
1,000,000-Up
Allegheny County
and Pittsburg,
Pennsylvania
Colorado
New York, New York
San Diego County,
California
Washington
-------
CASE SUMMARY BY FINANCIAL MECHANISM USED
General Obli-
gation Bond
Allegheny County and
Pittsburg, Pennsyl-
vania
Braintree, Massa-
chusetts
*DeKalb County,
Georgia
Kansas City,
Missouri
Knoxville, Tenn-
essee
Memphis, Tennessee
St. Louis, Missouri
•
.
Revenue
Bond
Atlanta,. Georgia
Brevard County,
Florida
Broward County,
Florida
Des Moines, Iowa
Harrisburg,
Pennsylvania
Hot Springs,
Arkansas
Nashville, Tenn-
essee
New York, New York
Orange County,
Florida
8.B. Oakland
County,
Michigan
Bank
Loan
Brookhaven , New
York
Great Falls,
Montana
.
•
Current
Revenues
Baldwin County,
Alabama
Denver, Colorado
Memphis, Tennessee
Portland, Oregon
Sacramento County,
California
San Diego, Cali-
fornia
Seattle, Washing-
ton
s.E. Oakland
County, Michigan
Ventura County,
California
Vermont
Weber County, Utah
Private
Capital
Allegheny County
and Pittsburg,
Pennsylvania
Broward County,
Florida
Minneapolis ,
Minnesota
New Orleans,
Louisiana
St. Louis,
Missouri
Saugus , Massa-
chusetts
•
•
Other
Arbuckle Regional
Development Author •»
ity, Oklahoma
Brevard County,
Florida „ !
V
Des Moines, Iowa
!
Maiden, Massachusett
New Orleans, Louis-
iana
Sacramento County,
California
St. Louis, Missouri,
San Diego County,
California
.
Ventura County/ .
California
i
Vermont
Washington
Weber County, Utah
Xi
-------
CASE SUMMARY BY ORGANIZATIONAL FORM
Town/City
Location
Atlanta,
Georgia
Braintroe,
Mass.
,
' Cheyenne ,
, Wyoming
.' •u.u
IBW York,
New York
Portland,
Oregon
(Region-
al)
St. Louis
Missouri
Seattle,
Washing-
ton
Vermont
••'ederal
'rrne
General
Revenue
Bonds
Current
Revenue
General
Obliga-
tion Bond
Current
Re venae
State
Bond
Bank/
Current
Revenue
County
Location
Allegheny
County t
Pittsburg
Penn.
Brevard
County,
Florida
Broward
County,
Florida
DeKalb
County ,
Georgia
Orange
County ,
Florida
Sacra-
mento
County ,
Cal.
San Diego
Califor-
nia
Ventura
County.
Califor-
nia
Weber
County,
Utah
Financial
Mechanism
General
Obliga-
tion
Bond/Pri-
vate Fin-
ancing
Revenue
Bond;
EFA Grant
Revenue
Bonds
General
Obliga-
tion
Bord
Revenue
Bond
Current
Revenue ;
16% U.S.
Air Force
84* Cur-
rent Rev.
lit Fed.
Grant
25« Cur-
rent
Revenue
3% Fed-
eral
Grant
97% Cur-
rant Rev-
enue,
incl.
Revenue
Sharing
Current
Revenue ;
58% U.S.
Dept.
Defense
42% Cur-
rent Rev-
enue inc.
Revenue
Sharing
Authority
Location
Arbuckle
Regional
Develop.
Author. ,
Oklahoma
Des
Moinea ,
Iowa
Harris-
burg,
Penn.
S.E.Oak-
land
County,
Michigan
Financial
Mechanism
Farmers
Home Ad-
minj stra-
tion Loan
Revenue
Bond/
Pari
Fassu
Bond
Revenue
Bond '
Revenue
Bonds/
Current
Revenue
Non-Profit Public
Corporation
Location
Brook-
haven,
New York
Nashville
Tennessee
Financial
Mechanism
Bank Loan
Revenue
Bond
Public Utility
Location
St. Louis
Missouri
Financial
Mechanism
Federal
Grant/
General
Obliga-
tion
Bond/
Private
Capital
Private
Location
Baldwin
County,
Alabama
Broward
County,
Florida
Kansas
City,
Missouri
Maiden,
Mass.
(Region-
al Sys.)
Minneap-
olis,
Minnesoti
New Or-
leans ,
Louisiani
Saugus,
Mass.
(Region-
al Sya.)
Financial
Mechanism
Current
Revenue
Private
Capital
General
Obligation
Bond
Undeter-
mined
Private
Capital
Private
Capital
Private
Capital j
I
i
t
i
i
^
!
-------
CASE SUMMARY BY PROCESSING/DISPOSAL 8YSKM *YPB
Landfill
Shredding
and Laiidfill
Incineration
Resource
Recovery
Allegheny County and
Pittsburgh, Pennsyl-
vania*
Arbuckle Regional
Development Author-
ity, Oklahoma
Baldwin County,
Alabama
Brookhaven, New York
Cheyenne, Wyoming
Colorado.
Denver,-Colorado
Des Moines, Iowa
Idaho
Kansas City,
Missouri
Knoxville, Tenn-
essee*
Minneapolis,
Minnesota*
New York,
New York
Orange County,
Florida*
Portland, Oregon
Sacremento County,
California*
Seattle, Washing-
ton*
Ventura County,
California
Washington*
Brevard County,
Florida
DeKalb County,
Georgia*
Great Falla,
Montana
Wyoming
Braintree, Massachu-
setts
Broward county,
Florida (inc. shred-
ding)
Harrisburg, Pennsyl-
vania
Rot Springs, Arkansas
Maiden, Massachusetts
Nashville, Tennessee
New Orleans, Louis-
iana
New York, New York
St. Louis, Missouri
Saugua, Maa a achusetts
S.E. Oakland County,
Michigan*
Weber County, Utah
New Orleant,
Louisiana
San J&ego, California**
Vermont (inc. landfill)
*Includes Transfer Station
**Pyrolysis
Ac
-------
•Atlanta, Georgia
Atlanta, the capital of Georgia and the county seat of
Fulton County, is the largest city in the state, with a
land area of approximately 132 square miles. The populatioa
of the city has increased slowly over the past decade, from
487,455 in 1960 to 497,421 in 1970.
Atlanta has traditionally financed solid waste capital
expenditures through the use of revenue bonds. As with many
other cases we examined, however, the sanitation department's
budget runs an annual deficit which is subsidized out of
general tax revenues.
Solid Waste System Background
The city's sanitation department currently provides
refuse collection and disposal services to all residential
units and to the majority of commercial and industrial
establishments within the city. Approximately 1,000 tons
of solid waste are disposed of daily.
Most of the operating costs for providing these services
are paid for through user-charge revenues. Currently, the
annual rate is $12 per residential lot, plus $8.00 per 25
feet of street frontage, with a maximum of $44. Commercial
service is provided on a fixed-rate-per-container basis.
At current rates, the department incurs about $2 million
annual deficit, which the general revenue fund covers.
Efforts to increase rates or to change the type of service—
e.g., to less expensive curbside pickup—have been politically
unsuccessful.
In 1968, the city disposed of all refuse in two large
municipal incinerators. When federal and state air pollution
standards became more stringent, however, a major capital
investment was required to bring both incinerators into
compliance. An independent consultant was hired to estimate
the cost of the modifications, and in October 1968, Atlanta
went out for bids on Sanitary Department Revenue Certificates
worth $4 million. Of this amount, $2,433,349 was to be
used to upgrade the older Mayson incinerator, built in 1942,
and $1,186,000 was to be spent on the Hartsville Incinerator,
This is a rough estimate, based on population and a refuse
generation rate of 4 Ibs. per person per day. The city was
unable to provide actual tonnages.
-------
built in 1965. The remainder would cover engineering
inspections, tests, and contingencies.
City officials were somewhat skeptical about the
proposed modifications. They decided, therefore, to install
air pollution control equipment on only one of the two
Mayson furnaces, and to test the results before making
further expenditures.
In 1970, capital improvements to the Mayson incinerator
were completed and tests were initiated. After one year of
trial operation, it was determined that the new system .
would not be able to meet the particulate emission standards.
The city was forced to close the facility.
Since that time, Atlanta has continued to operate the
1,000 ton per day Hartsville facility, without modification,
as well as six landfills which handle the 50,000 cubic yards
per month of refuse which formerly went to the Mayson
facility.
Recent Developments
Currently, Atlanta faces considerable pressure either
to upgrade or to stop incinerator operations. If a decision
to close the Hartsville incinerator is made, approximately
three sites are available within the city limits for new
disposal facilities. However, Atlanta's Department of Fin-
ance believes that issuance of an additional revenue bond
would be too costly given the sanitation department's cur-
rent deficit operations and has limited the project to a
maximum capital expenditure of $2 million ($1.8 million
remaining from the 1968 issue, and $200,000 out of subse-
quent operating budgets)«
Five alternatives appear to be under consideration.
First, Atlanta can install air pollution control equipment
on the Hartsville incinerator. The consultant who conducted
the Mayson incinerator study estimates that the minimum
costs would be $990,000, and that once incorporated, addi-
tional operating costs will amount to $60,000 annually.
But, it is probable that the state will require that waste
water treatment facilities be added to the incinerator.
This will create an additional capital and operating expense.
A second alternative is an offer from the Southern
Railway Company to bale, rail haul, and dispose of the city's
refuse for $6.97 per ton. The city sees certain disadvan-
tages built into this proposal, namely, the location of the
403
-------
baling station, the automatic escalation clause in the
contract fee, and the relatively high cost of the opera-
tion.
A third possibility involves a private firm willing
to contract for a recycling operation at fees comparable to •
landfill disposal costs. The company had firm commitments
for sale of recovered materials and was willing to dispose
of all refuse, provided the city would sign a long-term
contract. Since the city charter prohibits long-term
arrangements, no such contract was possible.
The fourth and fifth alternatives both include some
form of municipally-run landfill—one with pulverization
and one without. Despite public pressure against landfill
the city finance department believes this the most economi-
cal solution. Nevertheless, the public works department,
which makes the final selection of disposal technology,
currently favors maintaining the existing incinerator.
The final decision on these alternatives is being fleldyed.
The issue is a politically sensitive one, and 1973 is an
election year.
Financing
Atlanta is governed by a mayor and a board of aldermen
composed of 17 members and works under a strict budget law
which limits anticipated appropriations to 99 percent of
the previous year's revenues. Since 1937, the city has
ended each year with a cash surplus. With the exception
of the sanitation, airport, and water and sewer services,
all city departmental operations and capital improvements
are supported by the general revenue fund and general obli-
gation bond issues.
Nearly all G.O. bond issues require voter authorization
in a special-purpose referendum. The exception is a $4 million
bond issued each year for general city purposes without voter
approval.1 On December 31, 1967, the city,debt limit on
general obligation bonds was $176,843,000.2 At that time,
A 1968 Constitutional amendment makes this exception.
2
This is 12 percent of the assessed valuation of taxable
property. Assessed valuation is 40 percent of the esti-
mated true market value.
-------
the outstanding general obligation debt wan $117,113,617,
or 66 percent of the debt limit. In addition, the city had
outstanding obligations on revenue bonds in the amount of
$72,522,860. Included in this amount was $2,815,290 worth
of outstanding Sanitary Department Revenue Certificates
issued in 1949 and 1961.
Since 1949, Atlanta has financed major capital improve-
ments in its solid waste system by the use of revenue bonds.
The original rationale for using this mechanism appears to
have been the similarity of solid waste operations to water
and sewer services. Specifically, the Georgia Constitution
authorizes the city to make special assessments (i.e., user
charges) for both services1 which can be used to cover both
operational and capital expenditures. At the time of the
first such issue, it was believed that general obligation
bond financing should be reserved for those municipal
services which are unable to generate direct revenues.
The use of revenue bonds for solid waste operations has
been continued because of tradition.
In 1968, Atlanta was unable to raise solid waste
service charges to a level where total revenues would be
equal to expenditures. Based on cash flow projects prepared
at that time, the 1968 Sanitary Department Revenue Certifi-
cates received AA rating from Standard and Poor's (identical
to the city's rating), and were sold at interest rates
ranging between 4.3 percent and 4.75 percent. These rates
were comparable to municipal general obligation -interest
rates at that time.
It is interesting to examine the terms of this issue,
since it certainly does not appear to be a true revenue bond.
For example, the city pledges a "continuing direct allocation
from total service-charge receipts [of] the sums required to
pay principal and interest on [the certificates'] respective
maturity dates." These allocations have first claim against
departmental revenues. Furthermore, the city must "revise
and adjust such charges to the extent necessary to produce
funds sufficient at all times...to provide revenues for
the maintenance of the Revenue Fund, which shall be suffi-
cient to discharge the payment of the principal and interest
on said Series." Finally, no new certificates are permitted
unless the "principal and interest requirements on all
outstanding certificates and those proposed to be issued do
not in any one year exceed 33-1/3 percent of the total
sanitary service charge receipts in the following fiscal year."
•'•This became effective in 1937.
-------
Thus, since all county residents must pay the service
charge, the risk of default to bond holders appears
equivalent to that of a general obligation bond issue.
Unlike a true revenue bond, debt repayment need not be a
function of net revenues. In fact, operating costs have
continually increased since 1968 while the user-charge
rates have remained constant. As a result, the city now
finds itself with an annual operating deficit of around
$2 million. Since this amount is appropriated from the
general fund, there is no risk of default on bond repay-
ment.
Observations
Atlanta, like most major metropolitan areas, faces
the problem of upgrading and expanding disposal services
at a time when disposal sites are becoming increasingly
more difficult to obtain. The city appears to be limited
to a total expenditure of $2,000,000 for this purpose.
Since no effort has actually been made to issue additional
certificates, however, it must be concluded that this
constraint is in terms of internal allocation rather than
the capital market.
The final decision on system selection and financing
is likely to be some time in coming. The city finance
department is responsible for controlling the cost of any
change, and currently favors exclusive use of sanitary
landfilling with pulverization. On the other hand, the
public works department, which decides how money is spent
, favors restoring the incinerator. Complicating the
decision is a strong public concern about potential pollu-
tion problems, and "aesthetic" reservations about either of
these two alternatives.
-------
Braintree, Massachusetts
The suburban town of Braintree is located approximately
twelve miles south of Boston and has a population of 36,QOO
people. It occupies an area of 14 square miles. Braintree
has a representative town meeting form of government, with
administrative control vested in a board of three selectmen.
The community is primarily suburban/residential in nature,
although there are a limited number of manufacturing facili-
ties.
Braintree efforts to set up a municipal refuse disposal
system illustrate the risks of using untried technology,
particularly when financing presents no particular problem.
Solid Waste System Background
Before 1966, Braintree disposed of its municipal and
commercial waste in a large open dump located in the center.
of town. In 1966, the town learned that a large portion of
this dump would be displaced by a rapid transit station
and a 2500-car parking lot. Since there were no other
available sanitary landfill sites in the town, the community
was faced with an impending crisis, particularly because
solid waste tonnage was expected to increase over the
years. The only solution was to design another type of
disposal system.
A Town Refuse Committee had been established in the
early 1960's to cope with Braintree's growing solid waste
problem. In 1966 this committee was asked by the selectmen
to survey other communities in the South Shore area, to
determine whether or not a joint or regional landfill/
incineration effort might be undertaken. According to the
Town Refuse Committee's report in 1968:
None of the local municipalities were willing to
consider any 'firm'commitments with Braintree. It
is becoming very apparent that no town wants to
have another town's rubbish hauled through its
streets and disposed of within its boundaries.1
As a result of its survey, the Refuse Committee decided
that Braintree must solve its own problems. They looked to
incineration as a possible solution.
City of Braintree, Massachusetts. Report of the Braintree
Refuse Committee. 1968.
-207-
-------
In 1966, Braintree'paid Tneir \,
engineering consultants^ a fee of $200,000 to design an
incinerator.^ The engineers formulated a design of waste
heat recovery through steam generation. Steam would be
sold to a nearby industrial facility. In 1966, this was a
rather sophisticated solid waste concept, particularly
for a community with Braintree's population. The proposed
plant would utilize two continuous-flow, traveling grate
and water wall furnaces, each with a 120-ton per day
capacity. In consideration of air pollution problems, it
would employ electrostatic precipitators. As stated by the
project engineer, "At the time of design ... no plants in
the United States were using electrostatic precipitators.
However, several of the European plants had records of
very satisfactory performance ..."2 The cost for the entire
facility was estimated at approximately $2,750,000, with
annual operating costs of $169,000. It was also estimated
that annual steam revenues would be $160,000.
Despite the existing regional coordination problems, .
the engineers estimated future regional needs as between
350 and 570 tons per day, and they designed the facility
to serve as a regional operation at some future date. To
accommodate expansion the engineers provided for the
incorporation of a larger furnace equipped to incinerate
400 tons per day.
Financing
The capital cost of $2,750,000 was financed by a general
obligation bond issue approved during a special session of
the 1968 Town Meeting. The town has an A-l general obliga-
tion bond rating, with approximately $27 million in bonded
debt outstanding. The assessed property value is approxi-
mately $150 million, and the tax rate decreased from $103
per $1000 assessed valuation in 1970 to $85 per $1000 in
1971.
With the assistance of a bond counsel and the Municipal
Service Department of the National Shawmut Bank of Boston,
Heaney, F. L. Air pollution controls at Braintree incinerator.
Journal of the Air Pollution Control Association, 22(8):617-
620, Aug. 1972.
Heaney, Air pollution controls.
-208-
-------
the town solicited proposals for the purchase of the bonds.
The bond issue was $3,435,000 - $2,750,000 for. the incin-
erator and the remainder for unrelated projects (a golf
course and a sewer system) . Since the financing was to be
accomplished with general obligation bonds, the financial
advisor made no attempt to assess the economic and technical
feasibility of the incinerator. The prospectus for the
$3,435,000 issue made no attempt to describe any details
about the technology, economic feasibility, or risk of the
new incinerator system.
Recent Developments
The town of Braintree began burning all refuse on a
regular basis on May 10, 1971, when construction of the
facility was virtually complete. The project was officially
completed and accepted on August 18, 1971. The facility is
operated by town employees, on a two-shift basis, five days
per week. The boilers operate continuously, using gas fuel
on the third shift and on weekends. Staffing requirements.
are five men per shift, plus a chief engineer, a scale man,
and a night operator.
The town now faces three crucial problems: air pollu-
tion, high operating costs, and a lack of buyers for the
steam. The incinerator does not meet current Massachusetts
emission standards, and Breaintree faces pressure from the
state to "clean up" the facility. The extent or cost of
corrective measures is not know, but town officials believe
that expenditures.^ the $500,000 to $1 million range
will be required.'
Figure 1 summarizes operating cost information for the
incinerator. At the current disposal rate of 102 tons per
day, the average operating cost per ton is about $21.00.
Costs other than depreciation and interest are running
approximately 72 percent above the cost estimates of the
consulting engineer. On a percentage basis, utility costs
in particular differ sharply from the original estimates.
This is due primarily to the facility's heavy gas utilization
at nights and on weekends. The town expects the situation
to worsen as the price of natural gas escalates. Maintenance
expenses are also running higher than anticipated, and these
are expected to remain at a high level.
Current revenues come from industrial user charges, and
it is hoped that these will eventually be augmented by steam
sales. The firm which had agreed informally to purchase the
steam is now unwilling to do so because it considers the cost
excessive.
TO
-------
Observations
Today Braintree officials regret their decision to buv
the inrM n*»i-ai-r»^ .. _ I
High operating costs and air pollution nave
resulted from the program. Furthermore, the town did not
realize that steam production requires near-capacity use
of the system. This is not now possible. Although the
facility was designed to accommodate regional solid waste
disposal needs, there is some doubt that adjacent communities
will ever want to become involved.
Despite the fact that the Braintree incinerator was
embodying both technological and economic risk, the
community experienced no real problem in financing the
project through the general obligation bond. It is often the
case that investors in these bonds, backed by "the full
faith and credit" of the community, are more concerned with
the town's credit rating than with the risks of the particu-
lar project being financed.
3.10
-------
Brookhavenf New York
4 Brookhaven, one of ten towns in Long Island's Suffolk
County, is located about 50 miles east of New York City.
Essentially suburban-residential, Brookhaven has a large
number of individual family' homes and many apartment build-
ings. The population of Suffolk County in 1970 was 1,125,000.
This represents a 67.5 percent increase from 1960. Brook-
haven itself had a 1970 population of approximately 235,000,
more than twice the 1960 figure. These large increases in
population have brought with them a number of problems—in-
flated land value, suburban sprawl, and unmet solid waste
disposal needs.
The Brookhaven case illustrates the efficient and smooth
take-over of a municipality's solid waste disposal operation
by a state run public benefit corporation. It also provides
a model for reaching a feasible solution to the solid waste
problem without totally relying on voter approval.
Solid Waste System Background • -
Before the mid-1960's, the town of Brookhaven disposed
of its solid waste in open dumps. In the mid-1960's, the
Holtsville dump, long used for open burning, was converted
into a sanitary landfill, in conformance with state law.
Today, Holtsville is the only site in use.
Between 30 and 40 privately run firms provide collec-
tion services in Brookhaven. It is up to residences and
commercial and industrial facilities to contract independently
for solid waste collection. Many other residents haul
their refuse to the landfill site where they pay a dumping
fee. Because competing private collectors have overlapping
routes, high costs have resulted from this system of
individual alternative.
About 5 percent of Brookhaven has been organized into
three or four collection districts. Each has contracted
with one collection service. The town pays the contractor
and the families pay the town. Billings to residents are
made on regular tax bills.
^•1970 Census, Bureau of Census, Department of Commerce.
-------
In the mid-1960's, Brookhaven was forced to begin look-
ing for new disposal sites or alternate methods of disposal
for solid waste materials. As the population grew and
state regulations became more stringent, the sanitary
landfill at Holtsville replaced the open dumps. This method
was both inexpensive, and was technically feasible.
According to the New York State Sanitary Code no open
burning is permitted in sanitary landfills; its working
face must be covered daily; leachates must not enter the
water table; and plastic membranes must be used for leachate
control.
Recent Developments
In planning for change, the town board selected a
potential site and submitted it to a referendum, but their
proposal met with heavy opposition from neighborhood people.
The town board tried on two other occasions to select sites,
but again encountered such resistance that it did not hold
a referendum. In 1967, a committee of various town and
county and representatives of special interest groups began
to study the situation and make recommendations. This
committee met frequently over a two-year period. Its find-
ings indicated that a sanitary landfill was the least
expensive and most feasible disposal alternative. The
committee also recommended specific landfill sites.
Again, neighborhood residents vigorously opposed site
locations. Officials felt that the issue would be defeated
again if sent to referendum. It was then that the town
sought help from the Environmental Facilities Corporation,
the EFC, which had the resources to plan, finance, construct,
and operate solid waste disposal facilities.
At this point it maybe helpful to digress for a moment
and briefly explain EFC's background and modes of operation.
EFC was set up as an independent public benefit corporation
in 1967 by the State of New York, with its own board of
directors. Its capital structure is supported by income
earned from planning, operating, and construction contracts
negotiated with individual municipalities. The corporation
has been active mainly in water supply and sewage treatment
projects.
ERC enjoys a wide range of powers, both financial and
technical: to borrow money; to issue negotiable notes, bonds
or other obligations; to invest funds in obligations of the
federal government; to deposit money in banks; to acquire
-A'SL.
-------
t« •
municipal bonds and notes, and make loans to municipalities)
to sell municipal bonds, notes, or other securities. EFC
also has the power of eminent domain.
Along with these capacities, EF(5'has another unique
feature. Once a town and the EFC reach an agreement, and
voters register their accord in a referendum, the EFC is
free to operate without further voter approval. After a
program is underway only action initiated by a group or
individual would void the contract.
In this last feature lay the solution to Brookhaven's
site location problem. The EFC was formally requested to
work for the town in 1969. On January 21, 1970, EFC hired
the engineering consulting firm of Pope, Evans and Robbins
(PER) to prepare a comprehensive solid waste management
program and PER presented its formal report to the EFC in
July 1970. On September 11, 1970, EFC produced its own
report entitled, "Parks from Solid Waste."
PER and EFC recommended a system of four sanitary
landfills. To reach their conclusions, they had considered
a variety of dimensions, among others, growth, site locations,
transportation costs, land costs, and operating costs.
According to PER and EFC, landfill offered the best alterna-
tive when compared to other methods of solid waste disposal •
(low cost, the availability of adequate sites, sufficient
capacity at the sites).
Of particular note, the EFC plan also recommended that
three of the landfills be developed into parks and recrea-
tional facilities.
PER prepared the design for the landfill facilities.
Availability of landfill space was predicated on a popula-
tion base of the 1970 figure of 235,000, with a projected
increase to 650,000 by 1995. With approximately 5 pounds of
solid waste per day per person, PER estimated that 215,000
tons of solid waste would be generated in 1970, and 610,000
tons in 1995. Over the 25-year period, PER further calculated
that some 11.5 million tons of solid waste would be generated.
The unit cost of operation for the sanitary landfill
system, in 1970 dollars, was estimated to be $3.05 per ton.
Broken down, this figure includes $0.42 for land, $1.12 for
operation equipment, facilities, and administration, and $1.51
for park and recreational development.
-5/3
-------
In Fall, 1970, after the report was submitted, the town
of Brookhaven transferred control of its Holtsville site
to EFC. The EFC is currently operating Holtsville with
twenty-one full-time and eleven part-time workers, on a
two-shift operation seven days a week. On weekdays, 1,000
to 1,100 tons of solid waste are received. There is no
dumping fee, but private haulers must buy a $100 license
each year for each truck.
Financing
In Brookhaven's earlier attempts to find landfill
facilities, the town board needed voter approval of capital
funds. At the board's discretion, financing might have been
requested either specifically for solid waste disposal, or
as part of a larger budget for service facilities. In either
case, financing would have been through general obligation
bonds pledged by the "full faith and credit" of the town.
Instead, EFC undertook Brookhaven's financing, follow-
ing the signing of a 20-year contract. Through a series of
short term bank notes, the EFC borrows against the contract.
The "roll-over" of short-term notes is less expensive than
bonds. Short-term notes usually cost about 3 percent;
bonds cost about 6 to 7 percent.1 However, this short-term
roll-over is a temporary measure, pending a bond issue
when costs will be known and plans will be firm.
The contract calls for the town of Brookhaven to pay
the EFC a $3.05 per ton fee to cover all capital, operating,
and management costs, as well as a $.30 per ton fee to pay
for administration, planning, and management. The contract
also includes provisions for renegotiation of the payments,
should actual costs change.
Observations
Solid waste financing is not a problem for Brookhaven,
since the town has transferred full responsibility for
raising capital to EFC. EFC procedures are sound, and its
ability to borrow seems strong.
The EFC/Brookhaven relationship reduces the political
problem of establishing landfill sites for the next 20 years.
^Short-term notes, in general, have lower interest rates
than bonds.
-------
The fact that EFC can plan, finance, construct, and
operate the landfills without further approval from
the voters is crucial to the success of the venture.
The overall costs of disposal and recreational
facilities are low in comparison to other alternatives,
such as incineration or pyrolysis. To date/ the
disposal costs are within estimated budget figures and
it appears that the long-term capital outlay will
also proceed as planned. '.
-------
Cheyenne, Wyoming
Cheyenne, the capital of Wyoming and the major popula-
tion center of Laramie County, is a city of 40,000 people
set in the midst of vast open spaces.
Cheyenne's citizens seem to prefer a limited govern-
ment. The community generally resists governmental ex-
penditures and the addition of any new services. The debt
structure of the community reflects this conservative
attitude: the low debt allowance (about $3 million) makes
even modest capital projects difficult to implement.
Rather than plan for future needs, the community tends to
respond only to crises. Without a crisis, there is little
community concern about solid waste collection and disposal.
Solid Waste System Background
The city of Cheyenne has an open dump which is called
a landfill. Laramie county has no disposal site. Residents
outside the city limits must dispose of their own waste
either on their own property or at the city site. The city
generates approximately 100 tons of refuse per day; the
surrounding county area generates an additional 50 tons per
day. Private collection in the city is provided by two
operators, each with two dump trucks. Citizens who do not
take care of their own solid waste negotiate contracts
directly with the private operators for collection and
disposal. Many citizens of Cheyenne have "backyard"
incinerators and burn their own refuse. Although burning
is prohibited by state statute, only a local ordinance
would enforce this law, and Cheyenne has shown no interest
in passing such an ordinance.
The city makes no expenditures for solid waste, except
for highway department maintenance at the open dump. The
county has no solid waste expenditures or facilities.
Recent Developments
There is currently a debate over whether Cheyenne needs
an expanded program of solid waste management. While the
Model Cities Agency and the County Planning Board believe
that at least some strategy should be formulated both
city and county sanitation services continue to resist
change in the status quo.
Recently, litter from uncollected trash and from the
open dump has bothered at least some of the townspeople.
-------
The Model Cities Agency and the County Planning Board have
applied to the state, to two federal agencies, The Develop-
ment of Housing and Urban Development (HUD) and the
Environmental Protection Agency (EPA) for a grant to plan
a solid waste program. Although the Cheyenne city council
and the city's sanitation department may believe that
some action is necessary, they do not have any faith in
"paper studies." The planning grant application has
received little support from the city. The community has
actively resisted every new service and all bond issues
for the last five years.
Financing
Cheyenne's debt profile reflects the prevailing
government philosophy. Cheyenne's debt ceiling is $3,000,000
and rarely has the town had general debt in excess of
$1,000,000. Outstanding debt is presently $783,000.1
The city believes its solid waste obligations begin •
and end with making space available for an open dump. There
is at this time no capital financing being used for services.
Observations
The state of Wyoming and the city of Cheyenne dp not
give solid waste service a high priority. No significant
money is allocated for solid waste services within the
state or city.
P.ublic education in solid waste is being promoted by
a few local organizations which foresee major problems.
arising within the next decade. A number of residents in
Cheyenne, and particularly the county planners and the
Model Cities staff, believe the growth of the mining
industry in the state will double the state's population in
the next ten years and that this population expansion may
create.environmental problems previously unknown in the state.
However, these issues are ignored by the majority of
citizens in the city and in the state.
Goody's Municipal $ Government Manual, 1972. p.3132.
-217-
-------
Denver, Colorado
Denver, the capital of Colorado, is also a county.
It encompasses an area of 100,000 square miles and has a
population of 515,000.
The case of Denver illustrates a forward-looking regional
approach to solid waste management despite the fact that no
pressing environmental problems exist at this time.
Solid Waste System Background
Denver's five County Commissioners are responsible for
the planning and maintenance of county roads, county
hospitals, county recreation facilities and solid waste
disposal sites. The level of services is commensurate
with anticipated income. The Solid Waste Disposal Act
of 1967 gave them responsibility for designation of
solid waste disposal sites and facilities.
Denver's Public Works Department provides a municipal
collection service for about 129,000 households—single
and multiple dwellings and apartment buildings with up to
seven units. Municipal disposal takes place in public
and private landfills in and around Denver. Private haulers
collect refuse from commercial and industrial buildings,
as well as apartment buildings with eight or more units.
They use the same landfill sites as the city.
Normal residential pickup services are performed five
days a week. The city uses about 90 compactor collection
vehicles, most of which have a capacity of 20-cubic-yards.
Crews work on assigned routes and the normal work day is
eight hours. Each crew consists of a driver and two
helpers.
Denver pays both the operating and capital costs for
its municipal solid waste collection and disposal activities,
using monies derived from general funds. Hourly operating costs
are approximately $3.25 to $3.75 for the equipment and about
$11.00 to $11.50 for the three-man crew.
Collection costs in the 1972 budget amounted to about
$3.5 million; disposal costs, about $542,000. Disposal
costs included the operation of two city-owned landfills,
and the fees paid to two privately-owned sites. Denver
budgets $22.00 to $23.00 per ton to collect its annual
solid waste pile of 180,000 to 185,000 tons.
-------
City officials are optimistic about Denver's future
solid waste management. Operations are well-financed and
landfill life is long. One site has a life expectancy of
more than 35 years.
Recent Developments
Two major developments have affected solid waste
management in Denver: the establishment of the Denver
Regional Council of Governments (DRCOG), and the Colorado Service
Authority Act of 1972.
The DRCOG is a voluntary association of elected officials
from local governments and political subdivisions in Denver
and the aurrounding area. It includes five counties and
twenty-three cities. The population included within the
DRCOG was 1.2 million in 1970. This is expected to grow
to 1.5 million by 1980.
DRCOG is a regional planning agency whose responsibilities
include collecting, coordinating and disseminating planning
information; guiding regional planning efforts; and
assisting local jurisdictions in obtaining federal and
state aid for urban problems. In 1968, DRCOG set up a
Solid Waste Management Advisory Committee (SWMAC).
Through S7JMAC, DRCOG sponsored a comprehensive solid
waste management analysis and report for the region,
called Project REUSE (Renewing the Environment Through
Urban Systems Engineering). Also participating in
Project REUSE was the Urban Drainage and Flood Control
District (UD & FCD). Project REUSE took place between
August, 1970 and August, 1972. DROG contributed $40,000
and UD & FCD, $60,000. In addition, the Urban Systems
Engineering Demonstration Programs of the U.S. Department
of Housing and Urban Development provided a grant of $200,000.
In its report, Project REUSE examined two major urban
systems—solid waste, and storm drainage and flood control.
For each system a 20-year plan and an implementation program
were prepared. To support the program and related
recommendations, the proposal also includes a regional over-
view; the urban system concept; description of existing
solid waste management responsibilities, criteria, assumptions
and problems; six technical and five management alternatives;
and an evaluation of the concepts upon which the program is
based. The program covers short-range activities for
1971-1975, and a long-range program to achieve maximum
recycling and/or energy and resource recovery.
-------
Project REUSE'slobjectives fall into two basic categories-
minimum environmental pollution and a phasing-out of landfills
by 1990. More specific goals include the following:
. The conversion of solid waste management into a
contributor, rather than a cost, to the economy;
. The enhancement and conservation of environmental
and ecological values through beneficial use of
solid waste and by elimination of its pollutant
effects;
. The ultimate disposal of less than 25 percent,
by weight or volume, of collected solid waste
materials in landfill sites;
. The beneficial use of 75 percent, by weight or
volume, of collected solid waste materials,
through reuse, recycling, or energy recovery;
. The meeting of current air and water quality
and other solid waste related standards of local,
state and federal agencies;
. The offsetting of solid waste management costs
by revenues from sale of materials for reuse or
recycling, or from sale of heat or energy
derived from processing.
The project's "Final Reports" for solid waste are
supported by several other "Supplemental Publications".
The Colorado Service Authority Act (SAA) of 1972 was
signed into law by the governor on May 22, 1972. It
authorizes the establishment of authorities to provide
specific services on a regional basis. Potential service
authorities include: solid waste collection and disposal;
water collection, treatment and distribution; urban drain-
age and flood control; public surface transportation;
housing fire protection; hospitals; and cultural facilities.
An SAA Authority can recommend that it provide any or all
of these services. The voters will choose one or more.
Formation of a service authority may be initiated by:
(1) a petition signed by qualified electors within the
area to be served, numbering not less than five percent of
the total votes cast for all candidates for the office of
Governor in the preceding election; or (2) a resolution
adopted by the majority of the governing bodies of the area's
municipalities and counties.
•220
-------
Financing
Denver uses general funds to pay the capital and
operating costs for solid waste collection and disposal.
No significant expansion in operations or in capital •.
expenditures is currently planned. In 1970 the city set up
a reserve fund for depreciation of equipment used for
public works, and by 1972 this account held $6.3 million.
Once the Service Authorities are in operation their
Boards of Directors will be regional, and authorized to
draw from a variety of fiscal resources—ad valorem taxes,
service charges and fees, inter-governmental grants,
shares in state-collected taxes that may be established in
the future. Provision is made for the establishment of
special taxing districts, so that assessments and fees will
be charged only to those citizens covered by the authority's
services.
The board is also authorized to issue revenue and
general obligation bonds for the acquisition, construction,
installation and completion of improvements or facilities.
Any indebtedness of this type will require approval from
the voters.
Observations
Together, Project REUSE and the Service Authority Act
of 1972 provide the city and the region with a solid
base for a comprehensive regional solid waste management
operation. Even if a regional solid waste authority is
not established, Denver should have no problem in maintaining
an effective collection system and relatively low cost
disposal to private and/or public sanitary landfills.
-------
Des Moines, Tovra
Des Moines, the capital and largest city of Iowa, has
a metropolitan area population of 286,000.
This case illustrates the problems, advantages and
financing mechanisms involved in the transference of solid
waste operations from city government to an autonomous
regional agency.
Solid Waste System Background
Before 1969 Des Moines provided residential collection
and disposal services. The city operated its own trucks
and dumps. Commercial and industrial collection and dis-
posal were handled by private firms. Since land had been
plentiful, sites for solid waste disposal were easily ob-
tainable. State laws on sanitary controls were seldom
enforced. In 1967, two counties and most of the cities
and towns in the Des Moines Metropolitan Area realized that
the management of solid waste within their political juris-
dictions was becoming a major problem.
Officials in the area were awarded a federal planning
grant of $100,000 to assist in the financing of a compre-
hensive engineering study of the problems, to explore poten-
tial solutions and develop a common plan of attack, if
feasible.
In 1968, after a year of study, the firm of Henningson,
Durham and Richardson, Inc., consulting engineers, issued
a report entitled Collection and Disposal of Solid Waste
for the Des Moines Metropolitan Area.
The firm found that there were ample technical, legal,
financial and political reasons to support a joint approach
to the solution of regional solid waste management problems.
It recommended the formation of a metropolitan area solid
waste agency. The report proposed that an "...agency be
operated in a manner similar to a public utility, responsible
to the Agency Board rather than any one municipality or
county. It should have authority to operate independently
of city limits or county lines provided the city or county
is an agency member."
It was also proposed that the agency provide two types
of service to its members: solid waste disposal alone, and
a combination of solid waste collection and disposal. The
first was to be financed through a gate fee. It would be
-------
open to any person or company wishing to dispose of
solid wastes. The second service was to be financed
by a user fee contract with the individual agency member.
Recent Developments
On June 1, 1969, the Des Moines Metropolitan Area
Solid Waste Agency, called simply, Metro, was established
to provide efficient collection and disposal services for
Des Moines and neighboring Polk County. At the present
time, only the city of Des Moines uses Metro's collection
and disposal services. Most of the other communities
still depend on private collection services.
The Metro concept is a relatively new one in Iowa.
A 1970 Iowa law permits two or more state and local govern-
ments to provide joint services and facilities.1 Metro
was created as a public body corporate and politic, and a
separate legal entity by a majority of the local govern-
mental jurisdictions comprising the Des Moines Metropolitan
Area.
To aid in the establishment of Metro, Des Moines
received a demonstration grant of $200,000 from the U.S.
Public Health Service. In addition, under.a program ex-
tended to August 31, 1971, Metro received funds from the
Environmental Protection Agency.
Thus, Metro officials anticipated that the agency
would be fully funded and operational within two years.
It took somewhat longer, however, because Metro had to
defend itself before the Supreme Court of Iowa on two •
separate occasions, before being able to undertake full
operations. The first court action was a test of the
constitutionality of the basic enabling legislation. The
second action concerned the operation of a sanitary land-
fill facility.
The initial report raised two questions that had to
be settled in court: (1) Did the city have the right to
delegate authority to an agency created for the express
purpose of collection and disposal of solid wastes; and
(2) Did Metro have the legal right to issue revenue bonds.
The court ruled that Metro did have the authority to acquire
land and buildings by negotiation or purchase, as decreed
Chapter 28E, Code of Iowa, 1966, entitled, "Joint Exercise
of Government Problems."
-------
in the aforementioned law on "Joint Exercise of Government
Problems."
Today, Metro collects solid waste from 60,000 residences
in Des Moines. Collections are made by 75 men using 38 trucks
on a total of 24 routes. Thirty of the trucks have a
16 cubic yard capacity; eight, a capacity of 25 cubic yards.
Metro discards of its solid waste at its 400-acre
landfill thirteen miles from downtown Des Moines. The
site was purchased for $240,000 and opened in October, 1971.
It has an estimated life of twelve to fifteen years. The
landfill operates ten hours for five days of the week,
and eight hours each on Saturday and Sunday. It receives
between 250 and 325 trucks per day. Another Metro landfill
site of 160 acres, located ten miles outside of Des Moines,
is being contested in a law suit.
In 1972, Metro handled 240,000 tons at the landfill
from city collections, private haulers of commercial and
industrial waaste, and residential collections in non-
participating towns.
Financing
Since the establishment of Metro, financing has been
undertaken on a step-by-step basis rather than through a
long-range strategy. Some 108 Des Moines employees and
$206,000 in equipment and facilities were transferred
from the city to Metro.
The original report preceeding Metro's establishment
recommended that basic capital funds for the agency be
raised from revenue bonds. Annual operating costs and
debt service would be generated from the user-fees charged
for collection and disposal. In November 1970, however,
Metro was thrust into the collection and disposal
operation prematurely, before it could complete its
negotiations for the necessary start-up capital. Temporary
financial arrangements had to be made. Metro negotiated
an open line of credit with the city of Des Moines. On
October 19, 1970 under a "Temporary Solid Waste Agreement,"
the city agreed to pay for truck parking, vehicle mainten-
ance and employee wages until April 1971, when Metro would
be in a position to assume responsibility for its own
finances. In addition, the city agreed to act as Metro's agent
collecting user-fees with its regular billings for water
and sewage services. Des Moines pays Metro on a monthly
basis.
-------
Metro was set up so that solid waste collection and
disposal would be self-maintaining functions. The initial
charge to a householder for the collection and disposal
of his solid wastes was set at $2.00 per month for once-a-
week collection. The dump fee had been set at $.50 per cubic
yard. As noted earlier, many other haulers dump at the
site and disposal operations produce a "surplus". Metro
has, therefore, been able to finance all organizational
costs, equipment and facilities expansion.
Since its inception, in fact, Metro has bought
$684,000 worth of equipment. About $200,000 of this was
in purchase and lease-back arrangements and another
$200,000 was provided by bank loans. The balance was
the $206,000 paid for city equipment, mainly trucks.
Costs included $80,000 each for 2 bulldozers; $82,000
for a compactor, $50,000 for two used scrapers; and
$230,000 for fifteen new compactor trucks.
A period of three years was allowed for repayment of
capital for the equipment. As of December 31, 1972, Metro
had about $140,000 in outstanding long-term debt.
This payment system has proved equitable and feasible
for Metro. Recently, the agency paid off the remainder
of its debt to the city as a condition of the issuance
of revenue bonds for the disposal division.
To guide Metro through the intricacies of marketing
the revenue bonds, a financial consultant and a bond
counsel were hired. The financial consultant prepared the
bond prospectus and conducted the sale of $1.5 million in
revenue bonds in November 1972. (However, legal authority
for the use of these bonds was not approved until March,
1973.) The bond counsel assisted in the preparation of
all legal documents necessary for issuance of the bonds.
Metro has also employed an accounting firm-to audit its
books and to assist in general accounting procedures.
A city resolution authorizes Metro to issue revenue
bonds in the aggregate principal amount of $1.5 million,
and provides for an additional $500,000 in pari passu bonds.
The original bonds ($1.5 million) may be used for equipment,
facilities and landfills; the pari passu bonds may only
be used for additional landfills. The bonds are denominated
in $5,000 units and have maturities of $70,000 to $135,000,
in the years 1973 through 1987. They bear interest of
between 4.0 and 4.7 percent, the lowest level in the sealed
bids at the time of offering.
-------
k • .
The uses of proceeds of the revenue bond issue are
specified:
Land Cost (Metro Park East) $240,000
Initial Site Development 700,000
Equipment Fund 225,000
Headquarters and Shop 135,000
Reserve Account 200,000
$1,500,000
Since the agency cannot tax residents of the areas
served, .these bonds are only secured by the ability of
Metro to collect user fees for solid waste collection and
disposal. The resolution setting up the revenue bonds
calls for the establishment of a sinking fund with three.
subordinate accounts: the interest account, the principal
account and the reserve account. Metro must make monthly
deposits into these accounts to cover the next due pay-
ment (semi-annual interest payments and annual payments
on the principal).
Observations
Metro has not implemented most of the proposals that
were recommended in the original engineering report, but
it provides collection for the city of Des Moines only.
There are several reasons for the reluctance of member
communities to avail themselves of collection services.
The primary reason is that the men transferred from
the Des Moines City operation to Metro have a poor work
reputation. The Metro labor-management agreement provides
for a "parking lot vote" system; this allows truck crews
to decide whether or not to work on any given bad-weather
day. This provision has been exercised about ten times.
The men are required to make up the "weather holiday" on
the following Saturday.
Secondly, the private firms have had success in
promoting their services over those of Metro. Since Metro
absorbed the Des Moines operation, smaller communities
apparently feel that Metro is an instrument of the city,
rather than of the region.
-------
Metro, as it exists today, has been given no specific
standard-setting or enforcement powers, except through its
individual municipal entities. Individually, the community
or county may enact any ordinances necessary to enforce
rules and regulations that are beneficial to the agency or
its members. This is hard to do at times. Many factors
influence council decisions. For example, it is hard for
one community to enact ordinances that might benefit a
neighbor. Even environmental issues, such as anti-burning
or litter control, are unpopular items on council agendas.
As a result of its recent revenue bond issue, Metro
is in a good position to continue its consolidation and
growth. Additional financing will be used mainly for
equipment, and can be supported by long-term debt, which
in turn can be redeemed with proceeds (profits) from
operations. The revenue bond issue has provided a sound
base for landfill operations for many years and will give
Metro sufficient financing to carry out its mandate of
solid waste management.
-------
Great Falls, Montana
Great Falls, located in Central Montana, is the
largest city in the state with a population of 60,091, and
the county seat of Cascade County.
Great Falls provides a unique example of bank loan
financing for municipal investment in solid waste disposal
equipment. Such an arrangement presents an option for
short-term solid waste capital financing at interest rates
comparable to those for municipal bonds.
Solid Waste System Background
Traditionally, Great Falls has provided all collection
and disposal services to both residential units and
commercial establishments. Residents receive weekly curb-
side pickup service. Commercial refuse is collected daily.
The city collects an estimated 100 tons of refuse daily, •
six days a week.
Until about five years ago, Great Falls disposed of
its refuse by open burning. This practice was abandoned
following city legislation,1 and a sanitary "trench method"
landfill was established. Because ordinary earth-movers were
unfeasible, given the frozen conditions which prevail in
the area for much of the year, heavier, more expensive
equipment was required for adequate trenching and compacting.
Recent Developments
In the late 1960's, the city began an evaluation and
planning study of future disposal alternatives. Despite con-
cern over rising operating costs, as well as rising land
values, it appears that attention was focused on continuation
of the landfill strategy. Nevertheless, a local Heil equipment
representative approached city officials, suggesting that
the Madison, Wisconsin shredding project might provide
helpful information for solving Great Falls' disposal
problems.
When a group of Great Falls officials visited Madison's
Heil pulverizing operation, they saw three advantages to
adopting this operation:
1. Since the City/County Health Department was willing
to exempt pulverized refuse from the daily cover
1 State Solid Waste legislation was passed in 1969.
-------
requirement problems of operating in cold
weather would be alleviated, and operating costs
could then be kept at their present level.
2. Great Falls needed substantial quantities of fill
material, and the officials felt that pulverized
refuse might be used.
3. Many farmers in the area had expressed interest in
using suitable pulverized refuse for compost.
From the time of the city's initial interest in
shredding, the Heil Company had maintained close contact
with its officials. When Great Falls decided to purchase
a shredding installation, the company was in a good position
to negotiate. Furthermore, city officials had decided that
the Heil pulverizer was best-suited for their needs. They
were therefore inclined towards a negotiated bid.
Great Falls' officials wished to avoid a competitive
bid because they felt that the legal requirements of a
competitive bid would cost them money. The Heil Company
had already analyzed the city's needs and had made a
proposal to supply a 35-ton-per-hour pulverizer under a
turnkey contract arrangement. To ask for competitive bids,
the city would have been required to perform the same
analysis at its own expense.
The Heil Company submitted a bid for $695,000 for all
equipment—two pulverizers (one 30-ton-per-hour unit and one
15-ton-per-hour unit), a building, conveyors, and one
60-cubic-yard transfer trailer and tractor set.-* Under
the terms of the contract, Heil would construct the
facility and operate it for 30 days.
Before this bid could be accepted, external events
caused a delay in the project. Great Falls had a city
election. Some of the new city officials were concerned
about the privacy in which the contract was being negotiated.
Pressure was exerted. The city engineering department,
which had been responsible for the negotiations, was required
to go out for competitive bids. To qualify legally as a
bidder under these new terms, Heil had to obtain a contractor's
license. It also had to pay a state tax of one percent of
the gross bid price if it won the contract. The city now had
Original specs called for a 75 cu. yard transfer trailer.
However, Montana highway load-bearing limits of 40 pounds per
square inch prohibited the use of the larger trailer for
transporting the denser refuse.
-------
to perform its own needs analysis, for which they obtained
the services of a consultant—adding another $35,000 to
costs.
Following notice of its intention to solicit bids,
two companies approached the city—Clean Air, Inc., an
incinerator manufacturer, and Eidal International, a
shredder maker. Discussions were held with both companies
and several city officials went to Edmonton, Alberta with
Eidal representatives to inspect an installation.
In June 1972, sealed bids were taken. Clean Air, Inc.
chose not to bid. A bid from Eidal was rejected on the
grounds that it did not conform with the bid requirements.
Consequently, Heil was the only qualifying bidder. Its bid
of $686,000 ($9,000 less than the negotiated bid) was
accepted on October 1, 1972, and a contract was signed in
December, 1972.
Financing
Great Falls had an outstanding general obligation debt
of $3,944,000 in June 1970. By law, all municipal debt
financing must be done through general obligation bonds,
revenue bonds, or by way of lease/purchase agreements which
do not exceed five years in duration. The city has an A
rating on its general obligation bonds.
At the outset of the project, city officials did not
favor bond financing, which would have required a referendum
because they felt that voters greeted municipal bonds with
indifference unless the issues covered "absolutely necessary"
expenses such as schools, roads, sewer and water systems.
The only alternative, then, seemed to be lease/purchase
financing. Consequently, when Great Falls prepared bid
specifications for the project, a requirement for contractor-
supplied financing was included.
The city had previously financed a municipal shop
complex through a lease/purchase agreement with a consortium
of local banks. Heil was able to offer a similar arrangement
through the American Bank and Trust Company. The bank was
interested in the environmental area and was able to provide
complete financing through a five-year loan at 5 percent interest
This was agreed upon in the Summer, 1972, when the contract
was signed. Monies will be advanced to Heil at the time
the project is accepted by Great Falls. At that time,
Great Falls will begin making payments directly to the bank.
-------
Two characteristics of this arrangement are noteworthy.
First, although Great Falls considers the financial
mechanism to be a lease/purchaser American Bank and Trust
regards it as a bank loan. Exactly what constitutes a lease/
purchase in the city's opinion is unclear, since Great.
Falls will have ownership immediately following the first
30-day period. These differing interpretations highlight
the degree to which all financing mechanisms use specific
terms, making them almost impossible to categorize.
The second significant feature is the interest rate.
Since loan interest payments provide non-taxable income to
the bank, one would have expected the interest rate to
approximate bond rates; perhaps even less, since the loan
is short-term. However, the bank set the rate closer to
the prime rate in existence at the time of the contract
signing for two basic reasons. In the first place, since
the contract did not require that debt repayment commence
until after project acceptance, the bank anticipated
a minimum delay of six months before the loan would
actually be made. During this period, bank interest
rates were expected to increase steadily. Second, because
there was no secondary market for Great Falls' bonds, the
bank felt justified in charging a higher rate.
Revenue for this debt repayment will come from a
special tax assessment passed by the city council. As
part of the annual tax bill, each household will be charged
$12 for a "pulverizer amortization fee."l In addition,
20 percent of all commercial fees, which are regulated by
the city, will be put into this account. The ability of
the city to make this assessment is the only guarantee.
provided to the bank. Since the amount of the assessment
is not permanently fixed, however, the guarantee appears to
be equivalent to that provided under municipal bonds.
Income from this source should easily cover debt repayments,
which will be $180,000 the first years, as -well as sinking
fund requirements. The city anticipates that as more users
subscribe to the system,.or as revenue-sharing funds are
made available, residential assessments can be reduced to
$6 annually.
Observations
The pulverizing plant is scheduled to begin construction in
March 1973. It will be capable of processing a maximum of
640 tons of refuse per day if operated on a three-shift basis.
Voter approval was not required for this assessment.
-------
This is equivalent to the needs of a population of 250,000.
Initially the system will be serving only the city of
Great Falls (population 60,000) and several small incorporated
towns in outlying areas.
Recently, Cascade County established a county-wide
solid waste district. Under a 1969 Montana law, the County
Commissioners have the power to establish such a district,
to require compliance with its solid waste program by all
"unincorporated" towns, and to finance whatever capital
investment is required by 20-year bonds. These bonds
would be repaid out of a solid waste tax assessment placed
on each household.*
The county has subsequently set up a number of small
landfills and is performing collection and disposal services
for all areas except Great Falls and a few small incorporated
towns. These small towns pay a $1 per month (or $12 per year)
fee for disposal to the county, which then transfers this
payment to the city of Great Falls.
Great Falls has invested in a disposal system with
substantial excess capacity. The city engineer felt
that this was not unreasonable, however. Great Falls
expects its system to have lower operating costs than many
of the county landfill systems, and it anticipates increased
usage by surrounding areas. It is interesting to speculate
on whether this change will ever take place. Since the
counties have just set up their own systems, it is not
likely that they will switch over any time soon. In the
meantime, the residents of Great Falls have to pay off
the cost of the pulverizer over the next five years. The
operation has a life expectancy of at least 20 years.
This assessment will be $21 per year.
-------
Harrisburg, Pennsylvania
Harrisburg, located in Southcentral Pennsylvania,
is the County Seat of Dauphin County, and has a popula-
tion of 73,000. This city provides an example of the
use of a revenue bond adjusted to take on the risk attri-
butes of a general obligation bond. Furthermore, the case
provides an insight into the difficulties of introducing
technical innovation and attempting to coordinate regional
service.
*
Solid Waste System Background
Harrisburg provides separate trash and garbage
pickup and disposal services for homes and apartments.
Garbage is collected and disposed of by independent
contractors who work for the city. Trash and all other
refuse is collected by city employees in city-owned
vehicles and is disposed of in a landfill operated by
the city. The landfill equipment is owned by the city
and the land is leased. Separate contracts are negotiated
for the collection of commercial refuse, and fees are
charged for disposal at the town's landfill.
Harrisburg had been using an inadequate solid waste
disposal system. For 35 years, the town had an open dump
which bordered on a public park. In 1969, combined
community pressure and state legal action brought about
the closing of the site. An older batch-type municipal
incinerator was inadequate for large-scale refuse dis-
posal because of its age, limited capacity, and air pollu-
tion problems. Present landfill on private land is
strictly temporary, with limited capacity. More significantly,
the Harrisburg area is geologically unsuited to landfill:
the limestone base results in pollutants leaching into
the water table. The state has not approved any new
landfills in the area without expensive site preparation,
including plastic liners. All existing landfills are
under close scrutiny.
In 1965, Harrisburg faced a disposal problem that
required study, strategy and swift action.
Recent Developments
Because landfills were considered an unsuitable option
Harrisburg officials limited the alternatives to composting
and incineration. In 1966, the City Council authorized
-------
funds for the formation of a citizens' committee to conduct
an engineering study and devise a plan for the disposal of
all garbage and refuse collected within the city limits.
To explore the possibility of a regional project,
the city invited all of the neighboring communities in
Dauphin County to participate in the study.**• One Borough
accepted the invitation but the other communities in the
county either expressed no interest or declined to parti-
cipate. Consequently, the committee did not pursue a
regional approach.
Ten months later, in January 1967, the consulting
engineer submitted his report. The study was thorough
in its examination of the population, the collection
practices, current methods of disposal and the quantity
and character of refuse.
The study also examined three potential methods of
disposal—landfilling, composting, and incinerating.
Landfilling was quickly dismissed because of the
large acreage required and the leaching problems which
had caused the current dilemma. No estimates were made
of the cost of plastic liners for landfills; hence,
landfill was never compared to incineration or composting.
Composting was dismissed because of poor technical and
economic performance elsewhere in the country.
The report recommended incineration because it
considered the process "nuisance-free, sanitary," and also
concluded that it "requires less area than other alterna-
tives." Recent improvements in the design of incinerators
were cited as evidence that this method was feasible.
The incinerator design was to reflect the latest in
improvements. It was to be a continuous charging, stoker-
fired, water-cooled incinerator, incorporating heat recovery
and electrostatic precipitation for air pollution control.
To provide for peak loading, two 300-ton units were
recommended. The cost of the project was estimated at
$6,850,000. The incinerator would be designed to generate
Technical aspects of the study were performed by Gannet
Fleming Cordry and Carpenter, Inc., of Harrisburg,
Pennsylvania.
-------
heat. If the heat could be sold, the engineers estimated
that annual sales would amount to $157,000. The annual
cost of operating the incinerator was estimated at
$690,000, or $8.86 per ton. If the revenue from the sale
of the heat was applied against the cost, the net cost.
annually was estimated at $553,000, or $6.86 per ton.
The Harrisburg City Council decided that the engineer's
recommendations satisfied the city's disposal requirements.
Plans and specifications for the incinerator were prepared.
Financing
The financing decision was based on Pennsylvania
tradition rather than specific financial factors related
to the incinerator. The debt capacity of the community
is $28,107,186 and the outstanding debt at the time of
the financing decision was $4,941,520.1
In Pennsylvania, most communities have made frequent •
use of the public authority as a means of financing waste
treatment facilities, parking lots, hospitals and other
single-purpose activities.2 The reason is simple: the
authority is merely an organization on paper. Yet under
a 1968 Pennsylvania law, an authority enjoys unrestricted
borrowing power. Thus a city could use an authority to
fund its large capital expenditures for special-purpose
activities, thus by-passing the city's debt limit, the
need for voter approval, and an increase in the millage
rate.
In this case, the authority would lease the incin-
erator to the city. The city would manage the facility
and the debt.
The investment bankers advised the community to
issue a revenue bond through the authority to raise the
needed capital.
The amount of financing needed was determined by the
bids submitted by conductors for the design which the
borrowing capacity of the city is based on 15 percent
of assessed valuation. Accrued valuation is 71.9 percent
of total property valuation.
o
In this case, the investment banking firm was C.C. Collings
of Philadelphia.
-------
consulting engineer developed. The winning bid of
$9,500,000 was accepted in December, 1968. The costs
of the engineers, lawyers, underwriters, equipment,
land acquisition, working capital, bond discount and
bond interest during construction added another $3,000,000
to the cost.
This cost was 83 percent or $5,650,000 more than the
consulting engineer's estimate, but this did not deter
Harrisburg officials neither did the technological com-
plexity of the system, which undoubtedly contributed to
the high bids, cause concern. The bonds sold rapidly in
the market and the ability to raise the capital was
never in question.
A significant feature of the revenue bond issue was
the leasing arrangement that tied the authority to the
city. Accordingly the authority would lease the system
to the city while the city would pay the authority from
revenue obtained from use of the facilities. Revenues
would come from a flat charge per residential unit, plus
a charge on industrial refuse based on weight of the
refuse upon its arrival at the incinerator.
The agreement stipulates that if the current revenues
are insufficient to pay all costs of the annual lease,
the city will make up the deficit from its operating budget.
Furthermore, the city will adjust charges in order to make
revenues equal to the annual lease payments.
The bond circular emphasized that the bond did not
pledge the "full faith and credit" of the community. In
fact, however, the lease arrangement promises the full faith
and credit of Harrisburg. Investment bankers told us that
such "authority finance" bonds, with a community-backed
lease receive the same treatment on the market as general
obligation bonds.
Observations
The city of Harrisburg is developing an incinerator
for disposal because its present system is inadequate and
because incineration seemed the most feasible of the dis-
posal options considered. However, problems have arisen
in the first stages of implementation.
First, the particular incinerator design chosen by
the city has not yet been determined a technologically
satisfactory approach. It is still unclear whether the
-------
incinerator will meet Pennsylvania emission standards,
and if it does not, how expensive redesign or maintenance
costs will be.
Second, the cost of the venture, $12,500,000, is
extremely high for a city of 70,000 people. Most cities
with populations under 100,000 spend one-half the amount
which Harrisburg a Hoc a Led for incineration.
Third, the concept: of heat recovery for commercial
sale is worthy of consideration, but there is as yet no
proof that sustained, consistent production of energy is
possible. Like the new burning process, heat recovery is
an unproven technology. Harrisburg did not guarantee potential
customers before construction because it could not develop
sales before a successful demonstration of energy
production took place. Hence, Harrisburg has no customers,
and probably will not have any until it produces a con-
sistent level of energy at a competitive cost.
Fourth, the 720-ton-per-day capacity of the system is
considerably greater than the community requires. The con-
sulting engineer used an estimate of 6 pounds per day per
person, but the study presented evidence that the waste
generation was actually 3.75 pounds per day per person.
It is sound to plan for growth in population, but historical
evidence indicates that the city's growth will be modest
at best. In fact, the city has experienced a declining
population since 1950. Furthermore, waste generation of
6 pounds per person per day for incineration planning
appears totally unrealistic, given the growing enthusiasm
for recycling in Harrisburg.
At any rate, there is sufficient capacity in the
incinerator for Harrisburg and several other surrounding
communities in the county. Although Harrisburg learned
during the study phase that surrounding communities did
not want to participate in the proejct, the city approved
a greater capacity than it needed because it assumed the
other communities would eventually use the facility.
Nearby communities are waiting to assess the incinerator's
performance and the cost of using the Harrisburg system.
At present, these communities have alternatives that are
more reasonable in cost than the Harrisburg incinerator.
Finally, it appears that Harrisburg has taken signifi-
cant risk with the backing of taxpayer money, but without
agreement from the taxpayers. Harrisburg is advancing the
state-of-the-art in domestic incineration, a significant
-------
undertaking for a community of its size. The normal checks
on risk-taking were not present in this situation, however.
The market accepted the bonds because the buyers felt the
lease arrangement precluded risk. The technical design was
not challenged because no one undertook an objective and
critical review of its feasibility. The plan was, in
effect, accepted without any firm proof that it would
work.
-238
-------
Hot Springs, Arkansas
Hot Springs, Arkansas is a community of 35,000 people,
located in the central part of the state. The area is
populated by small communities.
Hot Springs had serious problems with its solid waste
collection and disposal, and desired a change. The town
could use landfill, resource recovery, incineration, or any
combination of these. Since the community had been served
by private companies, it had to decide whether to manage the
system itself or to continue to contract for the work.
Solid Waste System Background
Hot Springs generates approximately 90 tons of refuse
per day. Private companies collected the refuse and dis-
posed of it in privately-owned landfills. The system was
operated in a laissez-faire manner, with no regulations on
the service companies. Each household and commercial
establishment negotiated its own service and charges.
The companies' costs have risen in recent years but
they have found it difficult to raise their prices. In-
dividuals and commercial establishments could take their
refuse to the town landfill themselves if dissatisfied with
increased fees. So instead, the service has been cut back.
The mayor and the city council have received numerous
complaints about inadequate service and extensive litter.
Since the private system was not working, some effort had
to be made to correct the situation.
Recent Developments
Hot Springs had to decide whether or not it should
own and operate a solid waste system. A recent statute
passed by the State Legislature enables communities to issue
revenue bonds for solid waste activities and facilities.
Thus, Hot Springs had access to capital outside of the voter
approval process if it decided to take over the system.
The city decided to examine some of the available
options. Four alternatives were considered.
First, Union Carbide offered to supply land for a
landfill at no cost. The corporation would then reclaim the
land for its own use. This option was an interim solution
because the capacity of the site would limit the city to
six months of fill.
-------
Second, the city could own and operate eight 12.5
ton-per-day incinerators at a location in the center of
the town. The community wanted eight incinerators because
they felt that reserve incinerator capacity was essential
for continuous health disposal.
Third, there was an available landfill located a con-
siderable distance from town. This option was dismissed
because of high transportation costs.
Fourth, a large corporation offered to set up a
steam generation plant to burn the refuse, in return for
the right to keep 50 percent of the steam. Because Hot
Springs has such a low volume of refuse, the city vetoed
this option.
While disposal options were being examined, Hot Springs
decided to use private haulers. The city would purchase
equipment and lease it to the companies. In addition, the
city would regulate the fees for service and charge each
household monthly on its water and sewer bill. The rate
for all households would be $3.00 per month. Commercial
rates would be based on the number and weight of containers
emptied at each pickup.
The issue of using private hauling companies has not
yet been resolved completely, even with the new equipment
leased to them by the city. The haulers are willing to be
city employees, but the city has not decided whether it
wants to manage collection of solid waste..
To solve the disposal problem, Hot Springs decided
that its plan to own and operate eight incinerators was the
most desirable option, because it gave the city control
over disposal.
Financing
Hot Springs' costs for taking over a major portion of
the solid waste system were as follows:
Eight incinerators $ 593,000
Buildings & site preparation 138,000
Trucks 239,000
Land 130,000
Total $1,100,000
-------
An attorney from nearby Little Rock provided financial
and legal advice, gratis, and suggested that the city use
the recently available revenue bonds as the method for
financing. The mayor and his assistant thought revenue
bonds were appropriate because they did not require a
referendum. This meant the city could move quickly. The
City Council approved the bond.
The bond counsel indicated that the revenues from the
incinerator should be 140 percent of operating costs,
particularly if more bonds were to be issued. The city
does not intend to cover deficits in the operation of the
system, but will increase charges to insure that revenues
cover costs.
The city has estimated that the disposal costs will
be $6.18 per ton; and the collection and hauling costs,
$9.70 per ton. The system will operate twelve hours per day,
six days a week, or 312 days per year. The charge system
for commercial and residential service will generate $640,000
in revenues. This will adequately cover all costs. From
the revenues, a reserve fund will be established for the
replacement of equipment.
Observations
Hot Springs had no trouble financing its solid waste
system once it decided upon its course of action. The $1.1
million issue was a competitive bid, and eleven bidders
responded. Investment bankers reviewed cost and revenue
projections but the project formula that revenues equal
140 percent of costs appeared to satisfy them.
Hot Springs faced its greatest challenge over siting
of the incinerators. The city has limited open space within
its corporate boundaries. Since the location of the incin-
erators was a densely populated area, the residents took
the issue to court, though the court upheld the location of
the incinerators, but time lost delayed the project.
-------
Kansas City, Missouri
Midwestern Kansas City has a population of 507,000
within the city limits and a population of 1.3 million
within the eight-county metropolitan region.
This case presents some of the difficulties surrounding
the acquisition of new landfills once capacity of old sites
has reached exhaustion. In Kansas city three recent attempts
to obtain new sites have met strong neighborhood opposition.
City officials, therefore, have had to devise alternative
ways to achieve voter approval for solid waste expenditures.
Solid Waste System Background
Kansas City's annual solid waste pile of 297,000 tons
is collected in a variety of ways from different segments
of the population:
. About 65,000 households "bag" their refuse
in plastic containers to facilitate weekly
municipal pick-ups;
. Another 65,000 are serviced by private
haulers;
. Some 10,000 dwellings have twice-weekly
collections arranged by local home-owners'
associations;
. The remaining 52,000 homes - mobile homes,
public housing, apartments, larger than
seven units - each serviced by varying
methods of refuse collection.
Kansas City recently closed two of its three landfills
and the third is scheduled for closing in July, 1973.
Kansas City operates 38 compactor trucks, ranging in
capacity from 18 to 25 cubic yards, each with a three-man
crew. On any given day, 27 crews are in the field. The
crews work four ten-hour days. During winter, waste volume
is 28 percent more than the yearly average, so in peak
periods, the crews often work the fifth day at an overtime
rate. Fringe benefits and overtime average 30 percent of
direct labor costs, while truck operating costs equal
$7.30 per hour for depreciation (8-year schedule), insurance,
maintenance,fuel, and oil. The city purchased its trucks
-------
between 1967 and 1971, and funds for four replacements
have been established in the 1973 budget.
Recent Developments
As mentioned earlier, the city was unable to get
neighborhood support for landfill sites on three recent
occasions. It then turned to a general referendum to
get financial support for solid waste spending. Voters
approved $8.45 million in waste disposal bonds for un-
specified activities in August 1972. This amount was
determined by a citizens' committee for capital expendi-
tures. At the present time, the city has not sold any of
the bonds.
Thus, even though the city has bonds authorized, it
is still unable to obtain public landfill sites. The Public
Works Department is studying fifteen potential sites.
Officials are not optimistic about their ability to obtain
approval for any of these, however. Most believe that the
landfills for city disposal will have to be handled by the
private sector. Three private operators have offered to
set up landfills, with dump charges of about $3.00 per ton.
Private operators are in a good position to purchase
new landfill sites, to use sites they already own because
they are unlikely to meet a political challenge. The only
requirements are both non-political—approval from the
zoning board and a City Health Department permit.
A Missouri law requires that all counties have solid
waste disposal plans by 1974. In theory, the city may
decide in 1974 that it will no longer be responsible for
disposal—thereby leaving the issue for the counties to
handle. This is, of course, not a practical solution to
Kansas City's problems.
Financing
Kansas City has an efficient program for financing
both operating and capital expenses for most city services.
Funds are raised in two ways: general revenues (taxes,
license fees, etc.) and general obligation bonds. In
1972, Kansas City obtained 72 million dollars in revenue.
These general revenues are used to support operating
expenses and the interest on the general obligation bonds
which the city council asks citizens to authorize from
time to time.
-------
The property tax produced 67.9 percent of city revenues
in 1947. In 1972 it provided only 23 percent. The 15.2 mill
levy normally provides 10 mills for operation, approximately
5 mills for debt retirement, and .2 mills for the operation
of a museum. In the view of city officials, the 5 mill levy
limit seriously curtails the amount of capital improvement
(general obligation) bonds the city can issue to meet
increasing demands for services. Currently, about $10
million in bonds could be sold without going over the limit.
Kansas City's earnings tax was initiated in 1958, at
the rate of 0.5 percent. In December 1970, this was
raised to 1 percent, with the provision that municipal
collection and disposal would be kept free of all user-charges.
When the city sponsors a "bond election" referendum
to get voter authorization to sell general obligation bonds,
it links each authorization to a specific capital improve-
ment area, for example, solid waste disposal. But the actual
activities to be financed with bond proceeds are stated in
general terms only. This gives the city flexibility in
meeting specific needs. It also allows the city to sell
just that portion of an authorized bond that is necessary
for a specific expansion of services.
Observations
Kansas City's governmental agencies seem well-run.
The solid waste collection system is efficient and progressive.
Financing is available, and so is the foresight to use funds
when necessary. Were it not for neighborhood antagonism
to landfills, Kansas City's current disposal problems would
be insignificant. Since the city has been authorized to
sell $8.45 million in waste disposal bonds and is now
'well under the limit for such sales, it has the means to
expand its solid waste facilities. It had not yet determined
how to solve its political problems, however.
A regional planning group, Mid-America Regional Council
(MARC), has developed plans for a regional solid waste
management agency. They recommend using sanitary landfills
exclusively. Through the assistance of this group, Kansas
City may find the solution to its solid waste disposal
problems.
-------
Knoxville, Tennessee
Knoxville has an expanding population which now stands
at 174,587 living within 77.6 square miles.
Knoxville employes a method of financing which is both
flexible and easily obtained. All budget expenditures and
bond issues require approval of the City Council without
direct voter interaction. Capital funds for Knoxville's
solid waste system, as well as its other capital projects,
are obtained from a capital budget funded by these general
obligation issues. The bond circulars are usually not
specific with regard to the allocation of funds, and solid
waste must compete with other city departments for capital.
Solid Waste System Background
The city of Knoxville currently provides trash and
garbage pickup and disposal services for residential,
commercial, and industrial generators. A 1971 estimate of
refuse volume for the city indicated a flow of 120,000 tons
per year, or approximately 480 tons per day on the average.
Prior to July, 1972, the city was disposing of all its
refuse at an open dump. A single bulldozer was essentially
the only equipment on site. After 1970, Knoxville, like other
municipalities in Tennessee, had to comply with a strict
state law that outlawed open dumping and required a state
permit for any disposal method undertaken. At the time of
its original passage, the permit system was to have taken
effect on July 1, 1971. Following protests from most
municipalities, however, implementation of the law was
postponed until July 1, 1972.
This law contained a unique provision: the state would
provide a grant to those munic-ipalities able to maintain a
satisfactory disposal system. This feature is credited by
the state's solid waste office as the major reason for the
excellent compliance throughout the state. The legislation
provides each municipality with a grant of $.75 per capita1
for each individual in the jurisdiction being served by the
disposal system. This grant was intended to cover approxi-
mately one-half of a city's disposal cost.
The state solid waste office anticipates an increase to
$1 per capita in the next session of the general assembly.
-------
Knoxville's initial response to the state law was to
establish a committee to study the problem and to choose
several potential landfill sites. This committee made very
little headway throughout 1971. On January 1, 1972, a new
mayor took office. He was confronted with a serious time
problem: the open dump had to be phased out in six months»
He therefore gave total authority for selection of a land-
fill site to the director of the Sanitation Department.
Re cent Developments
Obviously, in the time available for implementing a
disposal system, no options other than landfill could be
considered. The problem then became one of site selection.
The main questions considered by the director were soil
conditions, anticipated public reaction, hauling distance,
and traffic patterns.
The city was looking for a site to lease, since it
saw no reason to commit funds to temporary land ownership.
The site finally located is now being leased for $1500
per month. It covers 56 acres and is expected to last
for five years.
During the site selection process, free engineering
services were obtained by the city from the Tennessee Valley
Authority. A geologist from the University of Tennessee
was also hired to assure that state requirements would be
satisfied.
The site finally selected was located in Knox County,
outside the perimeter of the city. This raised new problems,
since approval of the county board would be required. Since
the county was also looking for a way to comply with state
legislation, Knoxville offered to provide disposal services
for the county if site approval was given. The service
would be at no direct charge to the county, but the city
would receive the county's share of the state's per capita
solid waste payment.
Agreement was reached on this proposal, with the added
understanding that the city would construct a transfer station
to reduce traffic to the landfill site. State approval of
the site was also obtained by the July 1 deadline. Thus,
both the city and county were able to satisfy the state
requirements.
-------
In order to purchase the equipment necessary to operate
the landfill and to construct the transfer station, $1.4 million
was allocated to the sanitation department for capital ex-
penditures. Of this amount, $425,000 was budgeted for the
transfer station. This is to be a three-pit station, .capable
of processing 750-800 tons per day on a two-shift per day
operation. The facility will be constructed by Dempster
Brothers on a "turnkey" basis, on a site already owned by
the city. The landfill equipment to be purchased is of the
usual variety, including a tractor-crawler, a tandem motor
grader, a tractor-scraper, and a 24-cubic-yard scraper. Some
funds will also be expended for collection equipment.
Financing
At the end of 1972, Knoxville had total bonded debt of
$94,589,694. Of this amount, $52,502,780 was self-supporting
from revenue generated by specific facility user charge plans.
This amount is also in one sense a general obligation of
the city's. In addition to its obligated revenues, the city
has pledged to fund any deficiencies if net project revenues
are insufficient to pay the principal and interest on the
revenue bonds. Knoxville also has an overlapping debt
obligation with Knox County in the amount of $41,813,133. This
represents 66.7 percent of the county's debt.
The total 1972 assessed value within the city proper was
$592,976,274, based on 45 percent reduction. Thus, the total
direct and overlapping debt, exclusive of self-supporting debt,
represents close to 12 percent of the assessed value, or
about $400 per capita.
In 1971, Knoxville generated general fund revenues of
nearly $25 million. Of the 1971 revenue, $4.1 million was
devoted to debt service. This represented about 16 percent
of the total general fund budget.
The $1.4 million capital fund for solid waste disposal
was obtained from a $9.8 million city general obligation
bond issue. As stated earlier, Knoxville issues bonded
debt on an irregular basis, generally twice a year. The
city aggregates all council-approved capital expenditures and
issues the notes when the market conditions seem favorable.
In this case, the issue contained $4 million in "Airport
Revenue-General Obligation Bonds," and $5.9 million in
"Public Improvement Bonds."
-------
Observations
Here is a clear case in which obtaining funds for
capital expenditures in a solid waste system presented no
problem from the point of view of capital markets. The
internal distribution of funds between city departments can
create budget problems for solid waste; this does not seem
to have occurred in Knoxville. The money requested by the
sanitation department was approved and allocated. The
problems Knoxville encountered were those that come as a
result of poor planning, limited public relations, and
political disputes between separate jurisdictions.
-------
Maiden/ Massachusetts
Maiden is a city of approximately 58,000 people, located
in the densely populated North Shore1 area of Metropolitan
Boston. The population has not changed significantly during
the past 10 years.
As of this writing, Maiden has devised no firm alterna-
tive to the Saugus dump, which it currently uses. The case
is of interest, however, because the alternatives which
have been explored involve complex solid waste disposal
systems to be designed, built, owned, and operated by private
firms. Although sponsored by Maiden, the system is intended
to serve 500,000 to 1,000,000 people.
Solid Waste Systems Background
Maiden and most of the other North Shore communities
have used the privately-owned Saugus dump for solid waste .
disposal for a number of years. Of the approximately $915,000
which Maiden spends annually for rubbish and garbage
collection and disposal, $570,000 is for private rubbish
collection and hauling; $175,000 is for rubbish disposal;
and $170,000 is for garbage collection and disposal. The
rubbish dumping charge is currently $6-$7 per ton.
Maiden generates 100-150 tons of solid waste per day.
The Saugus dump is not a sanitary landfill. Thus it
has been attacked by local environmentalists for its
ecological impact on the North Shore Marshlands. Both the
state and the town of Saugus have put considerable pressure
on the owner either to upgrade or close the dump, but they
have not succeeded because the Saugus site is presently the
only solid waste disposal facility in operation.
A significant obstacle to progress in the search for
a viable disposal system has been conflicting interests
purposes of this case study, the North Shore region is
considered to comprise those 15-20 communities, with a
total population of approximately 1,000,000 people, which
presently use the Saugus, Massachusetts dump for disposal
of 1500-2000 tons of solid waste daily.
-------
of the North Shore communities. As described in the Saugus/
THESCO case, the North Shore Regional Refuse Disposal
Planning Board was established in 1966 to provide an altern-
ative to the North Shore's current disposal site. It
appears, however, that not all the communities were equally
interested in this effort. When a solution Thermal Energy •
Systems, Inc., called THESCO, was proposed, it did not
satisfy all the communities. One major reason for
dissatisfaction was that the owner of the Saugus dump,
DeMattep Construction Company, was to be a partner with
Combustion Engineering in the THESCO joint venture. Many
communities, including Maiden, were not pleased with what
they considered DeMatteo's monopoly, and sought alternative'
solutions. Maiden, in particular, had been working on the
disposal problem independently and had developed some
tentative plans even before the board had begun to function.
With the dissolution of THESCO Maiden continued its inde-
pendent efforts.
Recent Developments
In the late 1960's, Maiden's Mayor Kelliher, who has
served in that office for 14 years, became interested in
the high temperature incineration system offered by American
Thermogen, Inc. (ATI). This system—the MELT-ZIT Destructor—
was particularly attractive because of the possibility of
obtaining a federal demonstration grant to cover part of
the cost. In addition, with this system, no preliminary
separation would be required before incineration,thus the
city's pre-disposal costs would be minimized.
ATI, a subsidiary of Process Plants, Inc., is a small
firm that specializes in cryogenic systems. Currently, ATI
is attempting to become a major concern in the growing solid
waste disposal market with a high-temperature incineration
process, the MELT-ZIT Destructor.
Developed in the early 1960's, MELT-ZIT was first
demonstrated in a 120 ton per day pilot plant in Whitman,
Massachusetts, financed entirely by ATI. The high temperature
of 3,000 degrees farenheit enables the system to incinerate
efficiently almost anything that can be fed into the
receiving vault, including engine blocks. Air pollution,
an early problem with the Whitman plant, has been effectively
controlled, and ATI representatives state that their system
can meet any foreseeable emission standards.
-------
The main component of the system is a vertical shaft
furnace, fed continuously by a conveyor. The speed of the
conveyor is automatically varied according to the weight of
material being processed, to assure uniformity of input to
the furnace.
The system produces steam and a slag-like material
called "Frit," which has found uses as aggregate in
asphaltic concrete and as an insulation material. ATI
obtained an agreement with the Ashland Oil Company to buy
Frit at a price of $1.25 per ton.
The first operational MELT-ZIT installation was com-
pleted in late 1972 for the National Security Agency at
Fort Meade, Maryland. -The facility was built on a
turnkey basis, that is, ATI agreed to design, build and
operate the facility, under a Corps of Engineers contract.
As conceived by Mayor Kelliher and ATI, the solid
waste disposal system for Maiden would be a 1650 ton per day
facility located in an industrial park. Collection would
continue to be provided independently by a private firm.
The industrial park location would be particularly convenient,
since it would assure a use for the steam generated by the
system. Plans were made to require industrial facilities
located in the park to use hot water, heating, and air-
conditioning facilities run by the steam from the incinerator.
For the use of the Maiden site, ATI would pay Maiden a fee
of $1 per ton of refuse, which at system capacity would
amount to approximately $50,000 per month.
Maiden received tentative assurance from Environmental
Protection Agency officials that it would receive an $8
million Federal grant to finance one-half the capital cost
of the system. On this basis, Mayor Kelliher convinced
a number of the North Shore communities to join Maiden,
thereby assuring a minimum solid waste input of 600 tons per
day. More users would be added at a later date when final
plans were made. It was anticipated that net dumping charges,
after steam sale, would be about $14 per ton at start-up
loads, and $7 per ton at full capacity.
In addition to persuading neighboring communities
to cooperate with Maiden, Mayor Kelliher had to arrange
for several important issues to be cleared through the State
Legislature. He also took steps to make certain that ATI
would honor its commitments on a long-term basis. (The
details of the arrangements with ATI will be discussed in
the financing section of this study.)
-------
Three separate items were covered by special legislation
passed specifically on Maiden's behalf by the Massachusetts
Legislature. First, Maiden was authorized to exceed its
general obligation debt limit by the $8 million necessary
to finance the system. Secondly, the city was exempted from
public bidding laws. (This meant that the "sole-source"
use of the ATI system on a turnkey basis was permitted.)
Third, approval was given for communities using the system
to sign long-term (31 years maximum) contracts with ATI.
Without this legislative assistance, the proposed system
would not have been feasible.
Financing
Maiden has an Aa general obligation bond rating, with
approximately $9 million bonded debt outstanding. The
assessed property valuation is approximately $115 million,
and the tax rate increased approximately 25 percent from
1969 to 1971, to a rate of $155 per $1,000 assessed valuation.
As stated in the previous section, the Commonwealth
of Massachusetts gave Maiden special authorization to exceed
its general obligation debt limit by $8 million to finance
the system. (The Commonwealth would in no way guarantee
the bonds.) Thus, the bonds for this regional system would
be backed by the "full faith and credit" of the city of
Maiden. This mechanism was chosen, rather than an industrial
revenue bond backed by ATI, to provide the least expensive
financing possible and thereby to minimize the dumping
charges. It was also recognized that ATI, even with the
backing of its parent, would have a very difficult time
providing the required security for an industrial revenue
bond at a "reasonable" interest rate. Under this plan, the
disposal facility would be owned by Maiden and leased by
ATI, with the lease payments to cover bond principal and
interest, plus administrative costs.
Recognizing the risks involved in the proposed system,
Maiden sought to reduce its vulnerability by requiring a
special form of security in tis leasing contract with ATI.
The contract required that ATI obtain the backing of a large
"corporate guarantor," such that this third party would
guarantee the maintenance of lease payments and the disposal
of all solid wastes for the duration of the indebtedness
period, which was to be 20 years. In effect, this corpora-
tion would assume "unlimited liability" for ATI's obliga-
tions under the contract. This arrangement would thereby
ensure that Maiden could repay its obligation.
-------
This is an interesting organizational and financial
mechanism, which assumes key characteristics of both
general obligation and industrial revenue bonds. Although
the "cost" of the financing is equivalent to G.O. bond
costs, the security is, in effect, provided by a private
corporation. To be sure, Maiden is officially liable for .
the bonds, but the contract provides ironclad assurance
that Maiden will be able to meet the obligation, through the
corporate guarantor, even if the ATI system malfunctions.
The Maiden city council approved the $8 million G.O.
bond issue, tinder the terms described above. Despite the
steps taken to reduce Maiden's liability, a dissident group
within the city petitioned for a referendum vote on the
matter by the residents. The City Clerk denied their
petition on the grounds that it was filed after the
legally established deadline, and the issue was taken to
the courts. The city was upheld by the Superior Court,
but this decision has been appealed and is still awaiting
resolution. This dissident group objected on two counts:
first, they were against the use of city-backed bonds for
a regional and technologically risky system; secondly,
they were strongly opposed to an incinerator for environ-
mental reasons.
As a general obligation bond matter was being dis-
puted in the courts, the project received a serious setback—
the rejection of its application for an $8 million demonstra-
tion grant. This development revised the economics of the
situation considerably, and all plans with ATI have
been cancelled, at least for the time being. The EPA
rejection was based on the high disposal cost per ton, a
lack of firm commitments for steam purchase/ and failure
to provide for resource recovery.
At the time of this writing, ATI was still in the
process of searching for a joint venture partner—the
large corporate guarantor—and hoping to proceed with the
project at a capital cost of $16 million. The firm is
considering the use of industrial revenue bonds, which could
be obtianed at a "reasonable" rate with the backing of a
major corporate joint venture partner. However, plans are
quite uncertain at this time.
Despite the current problems, Maiden is considering other
alternatives, including participation in the now-doubtful
THESCO project (see case on Saugus, Mass.). Some tentative
negotiations have taken piace with another incinerator
manufacturer to build ana operate a 600 ton per day conven-
tional incinerator for the Maiden area, but nothing firm has
been announced in this regard.
-------
Observations
From the outset, Mayor Kelliher's position on the solid
waste disposal issue has been that the privately built
and owned facility is the only feasible solution for the
large complex system needed by a municipality. He does not
consider it wise for the city to operate such a facility
because of the technological complexity and the risks
involved. This appears to be the consensus of the North
Shore region, and explains the emergence of both THESCO and
ATI as contenders for the major regional solid waste dis-
posal contracts. It remains to be seen whether, given the
political and financial complexities, a private corporation
will be able to build and operate a major disposal system
at a financial return which justifies the risks involved.
-------
Memphis, Tennessee
Memphis, the largest city in the state, has a rapidly
growing population of 629,000 spread Over its 217 square
miles.
The city of Memphis provides a clear-cut example of
general revenue bond capital financing. Virtually all
capital expenditures in the city are financed out of a single
capital account.—funded from annual tax revenues and
through general obligation bonds. Allocation of funds for
specific projects is based on overall city priorities.
Solid Waste System Background
The city's solid waste disposal system is operated in
conjunction with the sewage disposal plant by the Memphis
Office of Environmental Control. Memphis has a residential
garbage and trash collection service that is run by one city
department. Funding for this service is from general
revenues, although a fee of $2.50 per month is charged
each household. These fees are not intended to cover the
full cost of the solid waste system. One reason for the
imposition of a fee is that Tennessee law places a limit
on the ad valorem tax rate. The garbage fee, then, not only
raises revenues, but establishes a precedent for service
charges. Should the city's property tax rate approach the
state ceiling, the city has other revenue sources that can
be increased.
The volume of solid waste currently collected by the
city averages 2,000 tons per day. This amount has increased
steadily over the years as the city's population has grown.
Before July 1, 1972, Memphis was operating three open
dumps for all solid waste disposal. All three were located
in the flood plains of major rivers. As such they constituted
serious environemtnal hazards.
Recent Developments
In 1970 tiie State of Tennessee had passed a strict
law that outlawed open dumping and that required a city or
town to apply for a state permit for its disposal system.
A unique feature of the law was its solid waste grant
provision: when a disposal system was given a permit, the
state would pay the municipality a grant of $.75 per capita
-------
for each individual in the jurisdiction being served by the
system.^-
To facilitate the planning of a solid waste disposal
system that would qualify for a state permit, the city gave
the responsibility for disposal to the Environmental
Office. The engineers in this office had only recently
been involved•in the planning of a sewage treatment plant
built by the city, and thus had the experience to undertake
the new project.
Since a decision had to be made in six months, the
only realistic option was a sanitary landfill. The city
considered the possibility of using a private firm to
develop the site. Browning Ferris Industries (BFI),2 a
national solid waste management firm, was asked to submit
a proposal and presented its plan in a series of informal
meetings. The firm's bid of $2.50 per ton was so much
higher than the city's estimate of $1.50 per ton that this
option was dismissed.
The city had to locate an acceptable landfill site.
During the search, over ten sites were studied before one
was selected. About 18 miles from the city, the site
was a 920 acre, privately-owned gravel pit, no longer in
operation. The owner was delighted to let the city use his
land. He saw it as an opportunity to have the property
restored to a more useful condition. He refused to sell the
land, but agreed to a five-year lease for only $1,500 per
year. The only other realistic site available at the time was
priced at $10,000 per acre, so the city favored the gravel pit
location.
Unfortunately, the site was located in an unincorporated
area of Shelby County which was outside the jurisdiction of
For further discussion of this program, see the Knoxville,
Tennessee case and the relevant section in the Financial
Mechanisms chapter of Volume I.
BFI currently operates a landfill to service its own com-
mercial accounts, and the city uses it on a non-contractual
basis for one section of the city. BFI's disposal fee is
$.55 per cubic yard; the city charges outsiders only $.45
per cubic yard.
-------
Memphis. This presented some problems. Initially, the
county claimed that the city would need a zoning variance
in order to operate a landfill on the site. The city argued
.that as a public body, it did not need a variance. After
intense legal discussions, the city prevailed.
Shelby County was not so easily defeated, however. It
instigated proceedings against the private owner, claiming
that he would need a zoning permit if his land was to be used
as a landfill. At this point Memphis decided to compromise
and assisted the private owner in filing for a special permit.
After several prolonged debates, the County Board of Ad-
justment voted to grant the permit.
Before final approval could be given, however, site
modifications estimated to cost $60,000 were required.
These modifications included street improvements near the
site; two entrances rather than the one that had been
planned; extra guards; and paved roadways on the site.
Even with the permit and county approval secured,
antagonism between city and county continued. Because
site modifications were not fully completed by the date
of scheduled landfill operations, the county refused to
issue a permit and instructed an inspector to see that the
site remained closed. Operations began without the permit.
Financing
As mentioned earlier, Memphis budgets capital equipment
for all city departments from one account. This procedure
means that solid waste capital expenditure needs must compete
with other city programs.
The capital budget account is funded from two
sources. The first is that portion of general revenues that
is not needed for operations. The other source of funds is
money raised from general obligation bonds. In cities which
do not need voter approval for general obligation bond
issues, it is not unusual to raise capital several times
a year. This is the case in Memphis, where bonds are
usually sold twice each year. Of course, the timing of
sales is also a function of bond market conditions, as well
as the projected level of the city's capital expenditures.
Observations
Memphis is a large city that seems to have found adequate
solutions for its solid waste disposal problems. The city's
-------
Department of Environmental Affairs, which handles the solid
waste disposal system, appears adequately financed and
staffed. The department is currently examining alternatives
for the period beyond the current landfill's life, and
already has several new landfill sites under consideration.
It also plans to consider other disposal methods on a cost'
competitive basis.
The capital budgeting process in Memphis provides an
excellent example of the way that most municipalities
actually fund their solid waste systems. A significant fact
is that solid waste disposal must compete with other city
projects for capital. The allocation process is a
function of the municipality's internal priorities. The
use of general obligation bonds rarely means that specific
cost or technical information is required.
-------
Minneapolis/ Minnesota
Minneapolis, located in Hennepin County, is Minnesota's
largest city and has a population of 430,000. This repre-
sents a decline of over 50,000 since 1960 and of nearly
100,000 since 1950. Together with its "twin," St. Paul,
Minneapolis includes a metropolitan area of 1,814,000
people.
Minneapolis illustrates the problems tnat confront a
large city relying entirely on private firms for solid
waste disposal. The decision to use private operators for
collection and disposal appears to have been motivated
primarily by county policy rather than financial consid-
erations .
Solid Waste System Background
Before 1971, Minneapolis provided residential refuse
collection services only, funded from general taxes.
Disposal of the remainder of solid wastes was the respon-
sibility of the individual householder. Self-service
methods included backyard burning in barrels, use of incin-
erators, and periodic trips to landfills. Many residents
used private haulers on either a regular or an as needed basis,
The refuse collected by the city was burned at two
city-operated incinerators, with the ash and other residue
deposited in a city dump. Residents were also permitted
to dump burnable materials at the incinerator sites.
Both batch-feed incinerators, they were very old and violated
air pollution standards established in 1970. To attain
acceptable emission rates, the incinerators require a total
rebuilding.
No estimate of the garbage tonnage now collected and
incinerated by the city is available. The city's combined
collection and disposal figures average 510 tons per day.
This refuse comes from the approximately 120,000 dwelling
units that receive the municipal service.
Recent Developments
In 1970, Minneapolis had to formulate a strategy for
complying with a statewide burning ban legislated by the
Minnesota Pollution Control Agency and scheduled to take
effect in March, 1971. This ban would effectively force
the closing of both municipal incinerators and prohibit
individual residents from backyard burning.
-------
On July 31, 1970,Hennepin County adopted a Solid Waste
Management Plan. Deciding that "sanitary landfills and
transfer stations would be the best method of solid waste
disposal for the next ten years," the county began to
process and license applications for sanitary landfills
and transfer stations, and started closing dumps which
violated the program. In addition, Hennepin'-i
program called for a "maximum of orivate ownership and
operation."
In order to gain community backing, the city of Minneapolis
formed a citizens' committee, representing various sectors
of community life and business. Working together, the city
and the citizens' committee designed a municipally run
combined-refuse pickup for private residences. The proposal
included use of private haulers under contract, and disposal
at a sanitary landfill via privately-managed transfer station.
The decision to use private haulers under contract was
made in response to objections that small refuse haulers .
would be put out of business when the city converted to a
combined-refuse pickup. In order to deal more easily with
the city, fifty private haulers formed a corporation called
Minneapolis Refuse, Inc. This created a situation of
convenience for Minneapolis in two respects. First, the
city did not have to negotiate a large number of contracts
with individual collectors. Second, the city did not
face the risk of signing a single contract with a possibly
poorly-administered organization. Minneapolis Refuse, Inc.
negotiated a five-year contract for a guaranteed minimum of
70,000 pick-ups. The original charge was $2.55 per pickup
per month, with an additional $0.54 per pickup per month
for disposal if the transfer stations were not operative.
The contract permitted renegotiation after six months
and allowed for annual renegotiations as well. The current
rate is $2.67 per pickup per*month and $0.72 per disposal,
if applicable.
For political reasons, the city desired to retain all
employees who were engaged in the collection of garbage.
Fortunately, retention of the city crews established an
approximate 40-60 percent distribution between city and
private collectors. This ratio provides sufficient stops
for the private haulers to meet their minimum guarantee of
70,000 pick-ups.
-------
As mentioned above, the city also decided to contract
with a private firm to construct and operate the transfer
stations, and to provide final disposal. To this end, a
competitive bidding framework was established. The initial
round of bids were all rejected because of neighborhood
complaints about the locations of transfer stations. The job
was subsequently readvertised, with specifications permitting
the use of the two existing incinerator sites for transfer
station construction. The successful bidder would be
permitted to modify the existing structures or to construct
a new facility on site. Fortunately, the two sites were
located in areas that were convenient to both halves of
the city. Presumably, too, the replacement of an incinerator
with a transfer station was considered an improvement by
its immediate neighbors.
The lowest bid of $4.99 per ton was made by a local firm,
Phoenix Industries, that had been formed solely to take
advantage of this opportunity. The history of this firm is
unclear, it seems that one individual convinced several
local investors to join him in the venture. This man was
to have total management control of the operation. Several
months after the system began functioning, the firm was
reorganized and a new management was brought on board.
From discussions with city employees, it appears that the
original operation was quite unsatisfactory. The financial
backers, facing a cash flow crisis, decided to relieve the
initial manager of his responsibilities and to hire a new
one.
After the bid was accepted, construction of the two
transfer stations began. In order to satisfy the Minnesota
Pollution Control Agency's burning ban, the city was forced
to begin the combined refuse pickup on July 1, 1971. At
that time, because the original bids had been rejected, the
transfer stations were inoperative. Until the sites were
finished, the city used several disposal sites in order to
minimize hauling distance and to retain flexibility. They
did not want to be dependent on one or two landfills.
Operation of both transfer stations finally began on October
1, 1971.
The contract between Phoenix Industries and Minneapolis
will last for five years, with a five-year option clause.
During the first five-year period, the disposal charge per
ton is fixed at the bid price, except for a "cost-of-living"
escalation clause and an automatic cost-reduction clause
which is a function of tonnage throughout. Under the
terms of the latter provision, the current cost to Minneapolis
for disposal has fallen to $4.65 per ton.
-------
Minneapolis was fortunate in having no legal restric-
tions placed on contracting for a solid waste system for
a five-ye'ar period. No private firm could risk the capital
expenditures without at least a five-year contract. Under
the current city charter, it appears that only those
services associated with refuse removal can be negotiated
for more than one year.
Financing
General obligation debt in Minneapolis is limited to
10 percent of total full and true valuation, equivalent to
$116,350,782 on December 31, 1969. Outstanding general
obligations chargeable to the bond limit amounted to
$27,940,160 at that time, indicating a bond margin of
$90,016,242, safely within legal limitations.
From the city's viewpoint, their financing decision
was simply to contract with a private firm which would raise
the capital, purchase the equipment, and operate the system.
Thus, Phoenix Industries, the city's contractor, was
required to raise the necessary capital funds. As mentioned
earlier, Phoenix was a new firm, formed specifically to bid
for the Minneapolis contract. It was financed primarily by
private equity funds. Unfortunately, the current management
was unwilling to discuss the company's financial condition
with the writer except in the broadest generalities.
The initial capital requirement was $925,000. This
included the two transfer stations buildings for $250,000;
eight tractor-trailer units for $325,000; and landfill and
transfer station equipment for $350,000. A portion of the
$925,000 was provided by a local bank, presumably as a
short-term note secured by the equipment. The firm was not
willing to disclose the exact arrangement. Additionally,
the firm posted a $2 million performance bond with the city.
Conversations with the Phoenix management and Minneapolis
officials suggest that Phoenix is actually losing money on its
operation. This seems to be a result of its unrealistically
low bid. (The next bid was 25 percent higher than the Phoenix
offer.) Under the provisions of the contract, the price
per ton of $4.65 is now even lower than the original bid.
In tact, the city's estimate for operating its own disposal
two years earlier was $5.24 per ton.
-------
Observations
To date, the Minneapolis decision to rely on a private
contractor for solid waste disposal seems to have been quite
cost-effective for the city. The main problem concerns the
stability of the private contractor, especially since the
contract contains no cost-renegotiation clause. Nevertheless,
even if the firm should become totally insolvent and cease
operations, the city has the right to purchase the transfer
stations at "market value" and could lease a landfill site
on its own. Furthermore, the neighboring city of St. Paul
is now being serviced by a private contractor who has
indicated a willingness to move into Minneapolis should
the opportunity arise.
-------
Nashville, Tennessee
Nashville, the capital of Tennessee, and surrounding
Davidson County, have a consolidated metropolitan government.
Over 448,000 people live in this area. In the early 1970's,
Nashville began planning for a $16 million municipal refuse
incinerator and central heating facility. Because of the
large expenditure involved and the peculiar nature of the
service to be provided, a special non-profit public corpora-
tion was formed to construct and operate the plant.
Solid Waste System Background
All residential refuse generated within Nashville's
city limits is collected by city-owned vehicles and disposed
of at five disposal sites. Commercial refuse is collected
privately by Steiner-Lief, a local salvage firm.
Outside of city limits, refuse collection services are
handled by American Sanitary, a subsidiary of Browning-Ferris
Industries, and several one-man operations. American
Sanitary and Steiner-Lief are currently requesting permission
to purchase and operate their own landfill sites outside
of Davidson County.
Until 1972, Nashville, had been operating disposal sites
that were open dumps rather than sanitary landfills. Several
sites were located in flood plain areas and had been
experiencing severe leachate problems for some time. In
1972 both the Federal EPA and the State of Tennessee issued
injunctions for these sites.
Recent Developments
When Tennessee passed solid waste legislation in
1970, the public gave increased attention to Nashville's
disposal practices. Simultaneously, the state began to
exert pressure on the city to close most of its landfill
sites. As might be expected, Nashville soon found that
securing new sites would be extremely difficult, primarily
because of local resistance.
At about the time that these problems were accumulating,
a project was underway in Nashville to build a centralized
heating and air-conditioning facility for office buildings
in the downtown area. The plant was to burn conventional
fossil fuels. Initial studies indicated that such a
facility was both economically and technically feasible.
-------
Given the nature of the services to be provided, both
the gas and electric utilities seemed likely candidates
for undertaking construction and operation of the plant.
It was discovered, however, that the existing city Charter
would not permit such an arrangement. Amendments to the
Charter required a referendum, and the time required for
the lengthy referendum process presented real problems.
The economic viability of the project was critically linked
to providing immediate service to several large buildings
already under construction in the area. For this reason,
a concerted effort was launched to develop a satisfactory
alternative organizational form.
After much discussion between the city's law director,
bond counsel,1 and the Internal Revenue Service, the best
alternative seemed to be a special, nonprofit public
corporation with the power to issue tax-exempt revenue
bonds.- Consequently, on May 14, 1970, the Nashville
Thermal- Transfer Corporation was formed. In order to
qualify for tax exempt status, the corporation had to
meet four criteria:
(1) After all debt is retired, the assets of
the corporation must revert back to the
city;
(2) All corporate directors must be public
officials;
(3) The corporation must carry out a public
service function; and
(4) All easements for the heating and cooling
distribution system must be given to the
corporation at no cost.
Since the revenues to cover operational expenses and
debt repayment were to come solely from user contracts,
the city immediately began to seek customers for the plant.
Shortly after identifying several potential users, the
mayor became interested in the potential for converting
the plant into a waste-heat-recovery refuse incinerator.
This interest stemmed primarily from an awareness that
similar systems were used in Europe.
Borge and Pitt, Chicago, Illinois.
-------
•1
The consulting firm that performed the initial studies1
was asked to prepare new estimates for a heating and cooling
plant capable of burning refuse. The initial plant cost of
$4.5 million was revised upward to $8.4 million by the
engineers. They determined that these additional capital
outlays would be approximately equal to the fuel savings -
over the life of the project. Since the intention was
to have the city deliver some 1200 tons of refuse each
day at no charge to either party, the elimination of fuel
costs, as well as refuse disposal costs, made the concept
attractive.
Discussions between the NTTC Board of Directors and
local investment bankers indicated the need to satisfy at
least three conditions before financing could be arranged.
First, NTTC would have to get commitments from a sufficient
number of potential customers to insure above break-even
operation. Second, all contracts would have to be
negotiated with escalation clauses that allowed the plant
to raise rates automatically in accordance with its debt
repayment needs. And third, an outside consulting firm2
would have to be hired to give an unbiased evaluation
of the economic feasibility of the plant.
At this point in time, there were no signed contracts
with potential customers. Consequently, NTTC had to find
some large users. Since the State of Tennessee had many
large buildings concentrated in the vicinity, it seemed a
prospective customer. In June, 1970, the State entered
into a 30-year contract with the city that included the
following provisions:
(1) Two state officials must be appointed as
NTTC board members;
(2) All system extensions, beyond what is
needed to supply the State, must be
self-amortizing;
(3) The contract was not binding if a break-
even load was not reached;
1I. C. Thomasson $ Associates, Inc., Nashville, Tennessee.
2The engineering consulting firm of Duff and Phelps, Inc., of
Chicago, Illinois, was hired to perform an economic feasi-
bility study of the Heating and Cooling System Revenue Bonds,
which appears as Appendix A to the offering statement for
issuance of revenue bonds by the Nashville Thermal Transfer
Corporation, May 12, 1972.
-266-
-------
(4) No user contract could be signed that
gave more favorable terms than theirs.
Immediately following the signing of the state contract,
the metropolitan government entered into a contract for its
buildings.
Despite this show of State support, many private con-
cerns were still reluctant to commit themselves to the
project. In addition to these problems, NTTC was faced
with an immediate need to secure a site for the plant if
service delivery schedules were to be met. A GSA-owned plot
was located that required a $25,000 deposit. Because NTTC
already owed about $300,000 for engineering consulting
services, it approached a consortium of local banks for
loan money. A $2 million line of credit was granted the
corporation, enabling it to purchase the tract of land.
More importantly, the support given to NTTC by the financial
community apparently convinced the private sector that the
project was viable. Soon after, private users began signing
up.
Since it now appeared that the project would be
implemented, NTTC began to seek construction bids. The low
bid for construction of the entire system, including dis-
tribution lines, was about $16,500,000, approximately
$4 million more than estimated, and concern again mounted
over the need for more revenue.
In addition to seeking more contract commitments,
the corporation went back to the city, charging that NTTC
should not have agreed to accept the city's waste free of
charge. An agreement was negotiated by which the city
would pay the corporation $.75 per year for each person
in the metropolitan area—if the plant complied with
pollution regulations. This money was to come from a
state grant.* This amounted to roughly $336,000 per year
in additional revenue to the corporation. •
Significantly, the corporation does not guarantee
acceptance of a fixed amount of refuse. If it becomes
necessary to reduce substantially, or even eliminate,
the refuse input in order to maintain sufficient steam
output,^ the city must dispose of its refuse elsewhere.
The state solid waste legislation passed in 1970 provides
that to each municipality whose disposal system is given
a permit, the state will pay a grant of $.75 for each indi-
vidual in the jurisdiction being served by the disposal system.
2The system can also be fired by fossil fuels.
-------
On the other hand, the city is obligated under the existing
contract to pay the $.75 per capita per-annum fee to the
corporation, regardless of the volume of refuse that the
plant is willing to accept.1
Because of this situation, the Nashville Department
of Public Works is currently implementing a sanitary land-
fill system capable of handling the entire metropolitan waste
generation load. Apparently this department was not
actively consulted until higher city officials had decided
to go ahead with the project—thus the duplication of effort
and expense. Although the Director of Public Works is
now a member of NTTC's Board, this was not true at the
beginning of the project.
With a greater than break-even level of contracts,
NTTC needed only to get the State Legislature to exempt
it from ad valorem taxes before a sufficient cash flow
was assured. Despite some difficulty, this variance was
granted.
The only remaining requirement that the state and
metropolitan governments insisted on was that NTTC get a
tentative permit from the EPA. EPA, however, expressed
certain reservations about the plant's capability for com-
plying with air pollution standards to both Nashville and
the State of Tennessee. The system's designers were per-
sistent in their efforts to get the project approved and
were subsequently able to get a performance guarantee
from the suppliers of the wet scrubber system and dry
cyclone. With this guarantee, the local Health Department
was willing to issue NTTC a tentative permit. Under the
structure of the federal permit system, this was sufficient.
Financing
As indicated earlier, revenue bonds were used to
finance the total project cost of $16,500,000. A five-
member syndicate of regional investment bankers was brought
in for a negotiated sale. The bonds received a Moody*s
Engineering (A) rating and a BBB rating from Standard and
Poor's.2 The sale resulted in an average interest rate
This payment will be reduced, however, as more customer con-
tracts are signed. No formula to govern this reduction had
been worked out at the time the case was written.
The metropolitan government has an Aa rating on general
obligation debt and electric utility revenue bonds. Water
and sewer revenue bonds have ratings of Aaa and A.
-------
of 5.7 percent (July 1972). One of the investment banking
representatives estimated that this was probably about
50 basis points higher than the price of a comparable
municipal revenue bond.
The bonds were subsequently sold by the syndicate to
twelve large institutions, most of them banks and insur-
ance companies. This took only a few days.
Observations
Nashville presents a curious example of public decision-
making. As it now appears, the city will be building two
disposal systems—both capable of handling the metropolitan
area's entire solid waste needs. Despite a lengthy planning
process and extensive engineering, the consideration given
to disposal alternatives appears to have been minimal.
Even when a second team of engineering consultants
studied the situation, the analysis seemed to focus solely
on the ability of the contract fees to meet already
established operating costs and debt-repayment schedules.
No outside technical evaluation was solicited.
A second significant aspect of this case was the role
played by the investment bankers. From beginning to end,
their sole concern was to insure that sufficient revenues
could be generated to cover the costs determined by the
engineers. At no time did anyone seriously challenge
operating cost estimates or the technical feasibility
of any aspect of the system. When interviewed, one of the
principals responsible for the underwriting was not even
aware that EPA had expressed any reservations about the
system's performance.
Revenue bond financing through a non-profit public
corporation, backed with long-term escalating contracts,
is another way in which a municipality can structure a
financing arrangement to approximate the risk characteris-
tics of a general obligation bond. As one Nashville legal
advisor stated, the different in risk between the two
mechanisms was essentially psychological.
-------
New Orleans, Louisiana
New Orleans is located on the Mississippi River and
and has a population of 593,471 within the city limits.
New Orleans faces several major problems in solid waste '
disposal. Its high water table precludes establishing
landfills, and current sites in operation have come
under public attack. Moreover, the city's incinerators
are faced with being shut-down for violating state air
pollution standards. New Orleans, then, is an example of
a city which must act quickly to develop an environmentally-
sound and economically feasible strategy for solid waste
management.
Solid Waste System Background
The city of New Orleans provides residential collection;
commercial and industrial collection is handled by private
contractors. The city adds a one-dollar charge to the
monthly sewer and water bill for its collection service.
This money goes into a general fund, from which the
sanitation department is completely funded.
The city provides five incinerators and two landfills
for disposal. At present, there is considerable public
demand to dismantle the incinerators because of their
unsightliness. The city generates 2,000 tons of refuse
per day, however, and the 1,800-ton capacity of the incin-
erators nearly meets that flow. Actual performance of
the five incinerators does not match capacity»however,
as revealed in Table 1.
Incinerators in New Orleans have a history of high
construction and maintenance costs, numerous breakdowns,
extensive downtime, and low tonnage. In addition, all
the incinerators except East are in violation of state
air pollution standards and the state believes that this
facility will also be in violation soon. The city, however,
feels that the facility can satisfy state air pollution
standards for the next several years. As for landfills,
New Orleans' high water table has created a major solid
waste disposal problem, despite the abundance of open
space for possible sites.
Against this background, the mayor of New Orleans
recently initiated a study of solid waste disposal alterna-
tives.
270
-------
Recent Developments
The mayor was prompted to initiate a study because
of neighborhood complaints about the Algiers landfill,
a rat-infested, open-burning dump. To compound the problem,
its two incinerators were sending noxious emissions into
the atmosphere.
An alternate landfill site was examined by a consulting
engineer. The land was appraised at $12,000 an acre because
it had the potential for industrial development. Unfortun-
ately, it was a cypress swamp, covered by three feet of
water. It would need extensive preparation before it
could be used as a landfill.
' The site was finally rejected because the wet areas
formed methane gas that caused continuous fires.
The study team, made up of staff from the mayor's
office, then dismissed five more disposal alternatives.
Their reasons are given below.
The possibility of incineration was dismissed
because of its high cost, high maintenance
requirements, and the possibility that it would
not meet the state's air pollution standards.
Pyrolysis was rejected because it was a new and
unproven process. Furthermore, it required
technical skills not available in the city,
and the cost was expected to be high.
Compaction was rejected because bales cannot
be adequately disposed of in swampy landfills.
Reclamation was also considered infeasible:
extensive separation was required, with
attendant technical problems. Furthermore,
it would be difficult to market many of the
reclaimed goods.
Contract waste disposal was rejected because
it involved a long rail haul, at a total capi-
tal cost of $11,250,000.
The study group discussed three alternatives that
seemed feasible. The first, pulverized waste with a
landfill, would reduce volume by 35 to 50 percent. The
operation would require less personnel than incineration.
*?'
-------
The capital costs would be lower than for incineration.
The study group did not quantify the difference in costs,
however.
The second viable alternative was to upgrade city
landfills and to use outside contractors for disposal of
50 percent of the city's waste.
The third acceptable alternative was to upgrade the
open-burning Algiers landfill site and to add a transfer
station. Some waste would be dumped at Algiers; the rest
would be hauled by rail from the transfer station. A
private contractor would run the railhaul system, as
well as another disposal site.
Just when the study group was about to make a
recommendation, it was presented with a new alternative.
The National Center for Resource Recovery proposed that
New Orleans become the first major metropolitan area to
test full-scale resource recovery. According to the
proposal, the National Center would process 50 percent
of the city's waste; the city would process the remainder.
The city would use the New Orleans East incinerator for
its disposal, dumping any residue at a landfill.
The National Center cost proposal ranged from $5.50
to $6.50 per ton. This was considerably less than the
$11.50 per ton that New Orleans was averaging at the time.
The $5.50 estimate was the full cost to the city. The
National Center, according to the proposal, would retain
all profit made on .the sale of the recovered material.
At the time of this writing, the city was actively
involved in negotiations with the National Center, but
had made no final decision.
Financing
New Orleans has always financed its operating activi-
ties from the general fund. The city's major sources of
revenue are the property tax and the sales tax.
The city's disbursements in 1971 were $67,700,046.
Its solid waste expenditures for that period were
$4,037,673. Of this amount, $4,606,137 was for residential
services; $203,954, for supplies and materials; and $177,000,
for capital expenditures.
-------
The city has a capital fund appropriation which is
made up of the revenue remaining after disbursements are
made from the general fund, plus public improvement
general obligation bonds.
The debt limit is presently $232,000,000, based on
18 percent of the assessed value of taxable property
($1,289,742,490). The city's current general obligation
debt is $162,279,000, or 70 percent of capacity.
The present city administration is not anxious to
increase debt substantially at this time because bond
payments over the next ten years will average $12 million
annually. This figure has been criticized widely by New
Orleans voters. A portion of the annual payments go for
facilities not now in use. In other words, bond payments
have continued beyond the life of the facilities they
support. One of these facilities is an incinerator.
For all these reasons, the mayor welcomes the possibility
of shifting the cost of solid waste recovery or disposal
equipment to the private sector. If the National Center
could service 50 percent of the city's refuse, the mayor
could close down two incinerators and the Algiers landfill.
This would result in annual savings of at least $350,000,
and perhaps $500,000 in operating costs. It also means
future capital costs could be cut by 50 percent.
If the city is forced to solve its disposal problem
through its own financing, it will continue to use general
obligation bonds. If the National Center is to provide
service to New Orleans, the city does not yet know how
the resource recovery system will be financed.
Observations
New Orleans' unusual terrain offers the city an
opportunity to explore the possibility of new disposal
techniques. But each alternative has been deemed too
costly, too risky technologically, or too uncertain.
New Orleans had been hoping to find a short-term
solution for its disposal problems. Only when the National
Center for Resource Recovery made its proposal was New
Orleans willing to innovate. It is too early to tell if
the city will be willing to surrender control over the
disposal of 50 percent of its waste. From its early
responses, it would seem that innovation in solid waste
might be slow in implementation.
-------
If New Orleans accepts the National Center's proposal,
innovative financing techniques may result. For example,
the National Center might use a syndicate to finance
the recovery system, offering tax shelters to high-tax-
bracket investors through investment tax credits and
accelerated depreciation.
-------
Table 1
Incinerator Performance in 1971
Actual
Incinerator Capacity Disposal Cost Per Ton
(in tons) (in tons)
Florida 400 282 $ 5.12
7th Avenue 400 210 7.15
New Orleans East 400 317 7.00
Algiers 200 110 17.21
St. Louis 400 61 23.27
-------
, New York, New York
The five boroughs that make up New York City have
a total population of approximately 8 million people.
Although population growth has stabilized, New York's
solid waste pile has increased 3 to 4 percent annually.
This factor plus others—changes in environmental regula-
tions governing solid waste disposal, filling of some
landfills to capacity, air pollution problems associated
with the city's incinerators—have, in recent years, made
solid waste disposal a serious problem requiring massive
amounts of financing for both investment and operation.
Solid Waste System Background
New York generates approximately 26,000 tons of
residential, commercial, and industrial solid waste each
day, as well as, 5,000 to 10,000 tons of demolition and
construction debris. The Department of Sanitation col-
lects about 23,000 tons. Private haulers cart away the
rest. Once collected these wastes find their way into
either the city's incinerators or landfills. The city
employs about 15,000 people in the Sanitation Department
and employs about 2,000 collection vehicles.1
New York owns seven incinerators, one of which is to
be closed this year. These incinerators were built
between 1950 and 1963, each with a different design. Each
has a rated capacity of 1,000 tons per day, but usually
processes only 800 to 900 tons. Of the six remaining
incinerators, five are located in Brooklyn and Queens
and one in Manhattan.
The city has begun an upgrading program to rebuild
certain equipment in each incinerator and to provide
electrostatic precipitators capable of reducing particulate
emissions to acceptable levels. The estimated cost of
upgrading each incinerator is $10 million. The entire pro-
gram of upgrading is scheduled to be completed by 1977.
The five city landfills are of two types: barge-
accessible and truck-accessible. The only barge-accessible
landfill is the large Fresh Kills site located on Staten
Island. It is fed by shuttle barges, which are filled from
New York City's Department of Sanitation provides not only
collection services but street cleaning, snow removal and
disposal facilities, as well.
-------
trucks at eight marine transfer stations (MTS). Man-
hattan and Brooklyn each have three MTS, while the Bronx
and Queens have one each. Each MTS has a maximum capacity
of about 1,300 tons per day, but actaully handles about
1,000 tons per day.l Two barges are able to carry the
1,000 tons. At present, the throughput at the MTS is
limited by the number of trucks that can be handled during
the working period. At the landfill the barges are un-
loaded at two stations (a third is under construction),
equipped with cranes which fill trucks to distribute the
solid waste throughout the site.
The Fresh Kills is the world's largest, receiving
about 11,000 tons of solid waste each day. This includes
about 1,000 to 1,500 tons of incinerator residue. The
city anticipates that the site will be filled in 1985, at
which time it will be developed into a municipal park.
The remaining truck accessible city landfills are
scattered throughout the five boroughs and have different
capacities and life-expectancies.
Recent Developments
New York City has studied several alternatives for
handling solid waste disposal in the next thirty years,
among them, large-scale incinerators, "islands," alterna-
tive landfill sites, and marine transfer stations. At
present, public opposition is also deterring the establish-
ment of sites for new marine transfer stations. Some of
the alternatives have already been discarded; others are
currently at different stages of study. The city uses
an estimate of 30,000 tons per day as the planning figure
for the 1980-1985 period.
In the past three years, New York has spent about
$8 million for studies of large scale incinerators by
management consultants. The City Council halted the
implementation of one plan for a 6,000-ton-per-day incin-
erator, because it considered the project too costly. The
incinerator would have represented a minimum of $200 million
in capital costs and would have had a probable operating
cost of $18 to $20 oer ton. In addition, the Council
considered the proposed facility's air emissions unacceptable
in the light of present standards.
Studies have shown that MTS size should be held in the
1,000 to 1,500 ton range for the most economically feasible
system.
•277
-------
The New York City engineering firm of Pope, Evans
and Robbins (PER) has prepared a preliminary proposal for a
1,500-acre "ocean-fill" island, to handle not only New
York City's solid waste, but also solid waste from parts
of upper New York State, Connecticut, Long Island, and
Northern New Jersey. Its design capcity is 40,000 tons •
a day for thirty years. (See Figures 1 and 2.) The island
would be constructed on the bottom of the harbor, using
concrete perimeter walls 50 feet high, in 25 to 30 feet
of water. The solid waste would be dumped within the
boundaries of the wall to fill the space gradually. The
water displaced would be purified and pumped into the Bay.
The volume of solid waste would be built up some 250 feet
above the walls. Eventually/ the island would be covered
with soil, landscaped and developed as a recreational and
industrial park. According to PER, the project could be
successful only if it were managed by a public utility.
Preliminary estimates indicate a construction cost of
about $150 million over five years.
Landfill alternatives around New York City are limited
and possible sites have been targets of opposition. Environ-
mentalists have opposed these plans because of the dangerous
ecological impact of landfills on wildlife. Various com-
munities that would be affected should landfills be estab-
lished in certain areas have also expressed strong opposition.
As an alternative, New York City has discussed the
possibility of developing an upstate landfill with the
New York State Environmental Facilities Corporation (EFC),
an independent public benefit corporation.1 Shuttle barges
up the Hudson River would be used. To date, the plan has
remained in the discussion stages.
EFC was set up as an independent public benefit corpora-
tion in 1967. It is authorized to plan, finance, construct,
and operate environmental facilities. It has its own
board of directors. Its capital structure, originally
provided by the state, is supported by the income earned
from planning, operating, and construction fees on each
of the municipal projects it has contracted for. The
corporation has been active mainly in water supply, dis-
tribution, and sewage treatment projects, but has authority
to operate in solid waste management.
-------
EFC has the power to borrow money and to issue
negotiable notes, bonds, or other obligations of the federal
government, or to make deposits with banks. It may also
acquire municipal bonds and notes and make loans to munici-
palities. It is also able to sell municipal bonds or notes
or other securites.
New York City has attempted to stimulate new technological
approaches to its solid waste problems. It requested proposals
for a 1,000-ton-per-day plant which would be capable of per-
forming some combination of volume reduction and resource
recovery. It received over 100 proposals. It then selected
a group of the larger companeis which had prototypes in
operation with at least 40 tons per day capacity.
Each firm's proposal was evaluated in terms of perform-
ance guarantees, ability to meet all NYC regulations and codes,
financial capability, ability to write a fifteen to twenty-year
contract, and ability to build with its own capital resources.
The city's objective was to have a firm build the plant, put
it through a shake-down phase during which all contract
requirements would he met, and then sell it to the city.
The city would then lease it back to the builder. Finally,
the Monsanto Corporation was selected to build their pro-
posed pyrolj-sis system. Contracts were negotiated, but
problems developed concerning a New York City regulation
requiring that the work be opened to competitive bid. This
has halted the new program, since the city's solid waste
administration believes that the only feasible, long-term
approach to this unproven technology is through Monsanto's
pyrolysis system.
We have said that New York City's solid waste program
requires massive investments and large operating budgets.
Complicating this is the complex bureaucratic process which
requires extensive planning and maneuvering for each stage.
(See Figure 3.)
As an example, consider the proposal for new marine
transfer stations. The estimated cost of an MTS capable
of handling 2,500 tons per day is about $15 million.
If shredding is added to this, the cost rises to about $20
million. It will take five to seven years to go through the
planning, designing, budgeting, approval, and construction
phases. If it is a particularly smooth situation, it might
take five years. More frequently, the process takes longer.
-------
Financing
In 1971, New York City spent a total of $7.5 billion.
It finances its Sanitation Department expenses out of general
funds from various city taxes—real estate, corporation,
rental, cigarette taxes, etc. For Fiscal Year 1973, the
city budgeted about $176 million for Sanitation Department
expenses.
Capital projects are financed out of funds generated by
general revenue bonds. The capital budget in 1972 was $25.2
million. This was a rather low figure and included no
major facilities. The monies were used for trucks,
landfill equipment, rehabilitation of MTS, and some air
pollution control devices for an incinerator. (A detailed
breakdown of these figures was not available.)
New York City expects to spend between $600 and $700
million for solid waste management capital equipment and
facilities by 1985. This is between $50 and $60 million
per year.
Observations
Although New York's solid waste disposal problems are
vast, the city has more than adequate capability to finance
capital and operating costs for current activities and for
the expected growth in solid waste volume.
The city does have three main problems, however:
1) the long time lapse between proposed and implementation
of a solid waste facility; 2} the present lack of clear-cut
economical alternatives for solid waste disposal and/or
resource recovery; and 3) the disruptions and ambiguities
caused by "neighborhood nationalism" in the boroughs.
Today, New York City finds itself in a difficult
transitional period, the result of changes in environmental
regulation and public awareness of ecologically-sound
programs. The city's solid waste disposal operations face
challenges on many levels. As a result, its disposal
alternatives are more limited and more costly. How this
transitional period will end is not clear but our fore-
cast suggests that extensive changes in present operations
will occur, as well as large capital and operating expendi-
tures.
-------
\
ITE
•» •*—'
ISUHO
y>
RECAP ISLAND
*AREA: 1560 ACRES
AVERAGE APPROX. MEAN
HIGH WATER DEPTH: 25'-30'
' r
*.*
C
h
(D
Y»RDS f '
~000 , 2000 3000
POPE, EVANS AND BOBBINS INCORPORATED
CONSULTING ENGINEERS
k •* —«. i.......
-------
T?- ?••'/:!•>;;•}.-- !f-*-;? '.'.>•<,
LANDFILL CONSISTING
POSSlBlEDREDGlNi
MEAN HIGH TIDE
FREEBOARD
r CELLULAR WALL
400'
POPE, EVANS AND ROBBINS INCORPORATED
CONSULTING ENGINEERS
-------
Figure 3
New York City:
How New Solid Waste Facilities Are Put Into Operation
Planning and approvals
1. Prepare analyses and plans for facilities.
2. Identify site.
3. Get clearance from the President., of the Borough..in
which the facility will be located. (He has veto
power over any project in his borough.)
4. Obtain clearance from zoning board.
5. Develop impact statements.
6. Get preliminary budget approval from city council.
7. Develop preliminary plan (feasibility study).
8. Hold public hearings.
9. Prepare final design.
10. Negotiate construction contract.
11. Build facility.
Financing and appropriations
1. Go to Planning Commission for approval.
2. Get approval from Board of Estimate (Mayor, Borough
Presidents, Comptroller, President of city council).
3. Get items put into the budget.
4. Obtain approval from city council (passes on budget).
-------
Portland, Oregon
Portland, Oregon's largest city, has a population of
382,019 and covers approximately 93 square miles.
Until 1972, Portland operated an open dump as its
principal solid waste disposal facility. In recent months,
however, the facility has been upgraded to meet state and
federal standards. Portland has achieved the initial
conversion from open dump to sanitary landfill with relative
ease, both technologically and financially. Future upgrading
will require greater expenditures, however.
Solid Waste System Background
Collection services for the city are provided by no
less than 158 different private collectors operating some
200 trucks. The city issues licenses to these collectors
at an annual charge of $100.00 per truck for those operating
within city limits, and $400.00 per truck for those
operating outside city limits. In addition to these annual
charges, collectors pay, respectively, $.75 and $.40 per
cubic yard at the city's disposal site.
All of the city's wastes are disposed on land. In
1932, the city constructed an incineration plant, but it
was closed down in 1970 because of unsatisfactory operating
conditions. In 1962, the Regional Air Pollution Authority
required the city to discontinue open burning at its disposal
site and, at the same time, required that wastes be compacted
(but not covered).
In 1968 and 1970, consulting engineers from Black and
Veatch prepared two separate reports on the city's disposal
facility. This was a 190-acre open dump with significant
leachate problems resulting from the absence of earth cover
and surface grading. The equipment used to operate the
site has outlived its usefulness and no apparatus is avail-
able for loading and hauling cover material.1 An estimated
268,000 tons of refuse were disposed under these conditions
during fiscal year 1970.
Before 1970, the fees collected from private individuals
and licensed collectors covered only one-third of the total
The city's refuse disposal site lacks on-site cover material,
-------
Table 1
Capital Additions
RECOMMENDED
FISCAL YEAR
ACTUAL
1971 1972 1973 1974
Landfill scales (2) $65,000 $ - $ $ -
Lug wheel compactor - - _ 88000
Crawler tractor, D-8
class <2) 77,000 - 93,000
Self propelled wheel
scraper, 20 cu.yd.
truck (1) 134,000 -
Oj Tower Scraper
^ 20 cu. yd. truck (1) - 47,000
Dump truck (2) - 14,000 - 15,000
Water truck (1) - 17,000
Contingencies 14,000 7,000 7,000 7,000
Annual totals 290,000 85,000 100,000 110,000
1971 1972
$ - $ -
82,000
77,000
15,000**
14,000
17,000
15,000
77,000 143,000
Source: Black and Veatch, Inc. Report on sanitary landfill and refuse disposal costs
for Portland, Oregon. Kansas City, Mo., 1970.
**Unofficial estimate.
-------
cost of operating the refuse disposal site. The remaining
portion, as well as any capital expenditure/ was provided
by the city's general fund.
Recent Developments
Traditionally, the city's refuse disposal unit was a
division of the Bureau of Sewage and Refuse Disposal. This
bureau was part of the Office of City Engineering. To
provide better management and cost control, the refuse
disposal unit was separated from the Bureau of Sewage in
July 1972, and was reorganized into the Bureau of Refuse
Disposal.
The city, following the recommendations of its consult-
ing engineers, has been converting its open dump into a
sanitary landfill. In June 1972, Portland was issued a one
year permit by the Department of Environmental Quality (DEQ)
of the State of Oregon to operate the improved landfill.
A program of monitoring ground water has been instituted,
and emergency fire control systems have been improved. New
equipment totalling $143,000 will be delivered during fiscal
year 1972-1973, and $82,000 is budgeted for the following year.
Other improvements, including engineering services, will
increase from $30,000 (fiscal 1972-73) to $40,000 (fiscal
1973-74). Total operation cost is budgeted at $850,000 for
fiscal 1972-73, and $950,000 for the following year. The
purchase and hauling of more than 200,000 cubic yards of
cover materials accounts for nearly one-third of this cost.
Table 1 indicates the capital additions that were recommended
by the consulting engineers in the 1970 report, and the ones
actually made.
At the present time, Portland's landfill serves
approximately 800,000 people. Two private disposal sites
handle demolition materials which are not acceptable at
the Portland site.
The Metropolitan Service District is undertaking a
solid waste management study, to he completed by January 1974.
This study, conducted by private firms,1 is funded by the
State of Oregon. Until then, Portland hopes to be able to
1 The engineering firms of Cornell, Hayes, Howe and
Mayfield, Portland, Oregon; and Metcalf and Eddy,
Boston, Massachusetts.
-------
operate the present landfill without any major capital
expenditures.
Financing
As of June 30f 1971, the city of Portland had a total
bonded debt of $25,620,735. During fiscal year 1970,
$30,417,000 in taxes were levied. The assessed value of all
property is more than $3.45 billion.
Since 1972, Portland has been operating a sanitary
landfill for the Portland area, self-supported by fees.
Traditionally, two-thirds of the operating cost of the
disposal site came out of the city's general fund. For the
first time, during fiscal year 1971-72, solid waste disposal
expenditures were covered by the revenues from user charges.
Revenues for that fiscal year were $765,375 and total cost
of operation was $753,585.
There were several cash flow shortages during the period
of transition from the open dump to the sanitary landfill
operation. These shortages arose, mainly, because the
receivables from private collectors were collected three
to four months after expenses occurred. At that time, the
general fund was used as a "revolving credit line,"
although no interest had to be paid. The new user-charges,
as indicated below, generate approximately $950,000 per
year. However, because of the delays in collecting
receivables, the actual cash flow is somewhat less.
When the new standards for operation of a refuse disposal
site were adopted in 1972, the legislature also prohibited
the city of Portland from operating, its sanitary landfill
located in Multonomah County after 1973. However, the city
hopes that the law will be amended to allow it to operate
any disposal operation which meets DEQ standards.
-------
Rates
Minimum charge (2 cubic yards or less) $1.00
Each additional cubic yard over 2 cubic yards .50
Compacted-baled-compressed material
(per cubic yard} .75
Household appliances (in addition to
minimum charge) .50 each
Fill material (clean rock, dirt, cement, brick) No charge
The Bureau of Refuse Disposal estimates that revenues
from user-charges(without any rate increases) will match
expenditures until July 1975. To provide better control
over the city landfill's income and expenses, the city
engineer has recommended that a special disposal fund be
established. At present, all revenues flow into the general
fund, and all expenses are paid for out of the same fund.
But the city's charter does not provide for the establish-
ment of a dedicated fund. The consulting engineers'
recommendation that a reserve fund for acquisition and
development of future solid waste disposal facilities be
established (by collecting 7 percent of gross receipts)
cannot be followed for the same reason. At the present time,
excess revenue is absorbed by the general fund; none of this
excess is earmarked for refuse disposal activities. To
overcome some of these difficulties, a new budgeting system
will become effective during fiscal year 1973-74. Although
the solid waste funds will remain in the general fund, a
new information system will account for all revenues and
expenditures associated with refuse disposal activities.
The Bureau of Refuse Disposal has no loan outstanding,
and it does not expect to have to use the general fund for
capital additions over the next two years. After that date,
the city of Portland expects to participate in the Metropolitan
Service District Solid Waste Management Plan.
Observations
In 1970, 268,000 tons of solid waste entered Portland's
landfill. The 1970 Black and Veatch study projected a
future solid waste pile of 300,000 tons for 1975, based
on an estimated population of 393,000. These figures were
used by the consulting engineers as the basis of their
-------
recommendation for capital additions. However, because
Portland's facility services a far greater number of
people--800,000, according to the Bureau of Refuse Disposal-
it is likely that expenditures of $300,000 to $400,000
for additional equipment will be necessary over the same
period. In addition, the large quantity of leachate dis-
charged into the sloughs will require special pollution-
control measures. For example, under-drain systems, pumping
installations, dikes, or an aerated lagoon. Capital
expenditures for these may run well above $1 million.
However, until completion of the Metropolitan Service
District Study, the city expects to continue its present
course, limiting capital expenditures to the bare minimum.
"In the order of magnitude of 1.0 million gallons per day (mgd)
during the gauging period." (Black and Veatch, Inc. Report on
sanitary landfill and refuse disposal costs for Portland, Oregon.
Kansas City, Mo., 1970.)
-------
,'t
St. Louis, Missouri
St. Louis, located on the Mississippi River, has a
population of 572,000 living within 61.2 square miles.
The St. Louis Metropolitan Planning Commission expects
that the city's population will continue to decline over
the next eight years.
One consistent theme emerges in a chronological review
of the methods used to finance the St. Louis solid waste
disposal system: the willingness of the citizenry to
allocate funds for solid waste disposal purposes. Neverthe-
less, money allocated for solid waste facilities has gone
unspent while the city's decision-makers have developed
alternative solutions to the solid waste problem.
Solid Waste System Background
The city of St. Louis provides waste collection and
disposal services for residential needs only. Commercial,
industrial, and multi-family dwelling refuse is collected
by private firms and hauled to landfills in surrounding
Missouri and Illinois counties. For the last three years,
the city has handled an average of about 1000 tons of refuse
per day. Collection is scheduled on a one-shift basis over
a five-day week. The city uses a fleet of rear-loading
trucks to collect solid waste. The cost of purchasing,
operating, and maintaining the trucks is paid from general
city revenues.
The refuse collected by the city is burned in two
batch-fed incinerators, each with a capacity of 500 tons
per day. Both incinerators have operated at near-maximum
capacity for the last three years. These incinerators
were built in 1955 and 1958 and operate on a 24-hour
schedule five or six days per week. In 1967, impingement
type water baffles and a residual ash conveyor system
were fitted to both incinerators. With the baffles, the
incinerators are able to meet the city's air pollution
standards; however, this is not acceptable according to
Federal specifications.
Residue ash from the incinerators is hauled to an
abandoned limestone quarry within city limits, about
3 miles from one of the incinerators. At the present
rate of residue generation, the quarry will be filled in
four or five years.
-------
In 1966, the citizens of St. Louis passed a general
obligation bond issue to increase the capacity of one
incinerator by 300 tons per day. The city then made
plans for the necessary construction.
Before construction on the incinerator began, however,
the Union Electric Company of St. Louis suggested that
the city consider an experimental project designed to
recover energy from solid waste. The utility made the
suggestion because it needed new energy sources. City
officials favored the proposal. If the refuse were burned
in the utility's relatively clean boilers, the need for
expensive air pollution control equipment to service the
expanded incinerators would be eliminated. Money from the
federal government, as well as the utility, was available
to reduce the city's costs for the project.
The proposal was accepted in 1968. City officials
shelved the incinerator expansion for an indefinite period,
and used a portion of the 1966 bond issue to finance the
city's share of the experimental project.
Recent Developments
To take part in the energy recovery project, St. Louis
had to build a facility to process the refuse into a fuel
that would be compatible with the utility's boiler firing
system. This facility consists of a mill which grinds the
refuse into small particles, and a magnetic separator which
removes ferrous materials (about 6 percent of the refuse).
A soon-to-be-added air classifier system will separate
nonferrous noncombustible materials (about 14 percent
of the refuse). This device will permit future recycling
of nonferrous materials, and it will also reduce the
abrasiveness of the combustible material. The city's
processing facility is capable of operating at a rate of
300 tons per day with single-shift operation, and 600 tons
per day with two-shift operation. A third shift is needed
to maintain the equipment. The noncombustible residuals
are currently dumped in the limestone quarry, but plans call
for the eventual recycling of all the material. Approximately
13 people are required to operate the facility and to trans-
port the combustible material from the processing plant to
the utility's boilers.
The utility was required to add a storage facility for
the processed refuse and to make minor changes in two of its
boilers. This facility can operate on a 24-hour basis,
seven days per week. One maintenance man has been added to
the utility staff to check the new equipment.
-------
The energy recovery system is currently handling about
150 tons per day on a five-day basis. This material repre-
sents about 5 percent of the heating requirements for
one boiler.
The energy recovery project is now exclusively an '
experimental operation. Blockage and abrasion in the
pneumatic boiler feed tubes and excess ash have been the
primary problems in the system. St. Louis feels confident
that with modifications such as the air classifier, it will
be able to solve these problems. The city has dropped all
plans for further incinerator modifications and is currently
leaning toward extensive use of the energy recovery system
in future years.
Financing
St. Louis is governed by a mayor-council system.
Normal operating expenses for city services are appropriated
by the city council from tax revenues. The city charter
requires that general obligation and revenue bonds be
approved by a two-thirds vote of the citizens.
At the end of 1970, St. Louis had $117,091,000 of
general obligation debt outstanding and $46,862,000 of
debt supported by specified revenues. The cumulative legal
limit for all types of debt in 1970 was $171,732,220. This
limit was set by law at 10 percent of the value of articles
and goods in possession of merchants and tnanufactureres
during the previous year. The city's general obligation
bonds have been continuously rated by Moody's Municipal
and Government Manual as Aa. Recently, a portion of the
revenue bonds for airport construction were rerated from
Aa to Baa. The total assessed value of all real and per-
sonal property in 1970 was $1,538,572,000. These assess-
ments represent a reduction of 35 percent below gross market
value.
The two incinerators were financed with two separate
general obligation bond issues of $2 million each. Each
issue was quickly sold under the Aa rating at interest
rates of about 2.25 percent. The issues were sold in 1955
and 1958.
Under a general obligation issue, $3.37 million was
raised in 1966 to provide for increased incinerator capacity
and air pollution equipment. This bond issue needed a 67
percent vote of approval for passage. It received 68 percent
of the vote. Four bond issues out of eighteen were accepted
-------
by the voters in the election. The acceptance of the solid
waste bonds emphasizes the relative ease with which solid
waste financing can be raised in St. Louis.
Approximately $2.5 million of the 1966 bond money, is
currently available for solid waste financing. The re-
mainder of this issue has been used for the planning of
the incinerator capacity expansion and for the city's
share of the energy recovery project. The unspent portion
of the issue is currently being invested by the city con-
troller.
The experimental energy recovery project required about
$2.3 million in capital funds. The Federal Government pro-
vided two-thirds of the total through an Environmental
Protection Agency grant. St. Louis contributed $189,000
and Union Electric provided $550,000. The Federal Govern*
ment is also providing two-thirds of the funds to operate
the project.
Two-thirds of the cost of the $525,000 air classifier
will be financed by the Federal Government. The apportion-
ment of the remaining one-third has not been determined
at this time.
Financing for an expanded energy recovery operation has
not been established, but the revenue from recycled mater-
ials should provide some of the needed funds.
Observations
St. Louis has experienced relatively few'problems in
raising capital for its solid waste services. It has,
however, had problems spending the funds it has raised.
Planning for the incinerator capacity project was a pro-
tracted process, affected by the uncertainty of changing
air pollution requirements. The decision to drop further
capacity increases deviates from the original mandate of
the voters. However, the decision seems wise in the light
of current trends in air pqllution regulations.
The decision to experiment with energy recovery carries
a high degree of technological risk. Nevertheless, the low
cost to the city should justify the experiment. Even if the
project should prove unfeasible, the city will not have
expended much of its financial resources by exploring this
alternative solid waste disposal method.
333
-------
Saugus, Massachusetts
Saugus, a town of approximately 25,000, is located
on the densely populated North Shore1 of Metropolitan
Boston. This figure has not changed significantly in the
last ten years.
This case describes the financial and organizational
problems in establishing a regional solid waste disposal
system. In Saugus, two firms, Combustion Engineering,
Inc. and DeMatteo Construction Co., undertook a joint
venture called Thermal Energy Systems, Inc. (THESCO). For
a number of reasons, the plan never took effect. Had
THESCO survived, however, it would have been one of a
small number of solid waste disposal systems to be
designed, built, owned and operated by a private concern.
Solid Waste System Background
Since 1966, the North Shore Refuse Disposal Planning
Board has been searching for a solution to the problems
involved in the Saugus dump which is not a sanitary
landfill. The dump has been a target for environmentalists'
protests against its impact on the region's marshlands,
and both Massachusetts and Saugus officials have pressued
the owner to upgrade the facility. However, efforts of
all have met with little success. The Saugus dump is
virtually the only solid waste disposal site currently in
operation in the region.
The Regional Board concluded that a sanitary landfill
was not feasible because of land availability problems. It
then joined in a cooperative planning effort with the
General Electric Corporation. G.E. proposed that a solid
waste disposal facility be designed and built that could
provide steam to its plant in Lynn, Massachusetts. Since
G.E. intended to purchase the steam, the economic aspects
of the project appeared attractive.
The Regional Board realized that a major solid waste
facility, capable of handling the needs of 500,000 - 1,000,000
people of the North Shore, would be costly to build and
difficult for any one town to operate. There were also
political problems involved in forming a regional authority
For purposes of this study, the North Shore region is
considered to comprise those' 15-20 communities, numbering
approximately 1,000,000, which presently use the Saugus
dump for disposal of 1500-2000 tons of solid waste daily.
-------
to finance and run the facility. Thus, the board looked
to private enterprise to provide the needed financial and
technical capabilities.
Recent Developments
Thermal Energy Systems Co., Inc. was established in
September, 1971 to provide and operate a profitable
solid waste system for the North Shore. Partners in the
joint venture were Combustion Engineering, Inc., a major
manufacturer of incineration equipment, and DeMatteo
Construction Company, Inc., the owner of the Saugus dump.
Both partners viewed the situation as a promising
business venture for two major reasons. First, the monopoly
position enjoyed by the Saugus dump was expected to be
transferred to the new facility, since the present dump
would be closed down with the start-up of the new system.
Secondly, there was a known steam revenue source, G.E.'s
Lynn plant.
The $30 million system was designed to process 1200
tons per day of solid waste, at a cost of $13 per ton.
The primary shredder would reduce waste to six-inch
pieces. It would be driven by a 1,000 h.p. motor and
would be comparable to an automobile shredder in size.
Ferrous scrap would be removed magnetically after the
primary shredder operation. Non-ferrous metals and glass
would be removed through a heavy density separation
process, following the secondary shredder operation. No
firm plans were made for the final disposal of
these reclaimed materials.
Two silos would provide a total storage capacity of
1,900 tons. Waste would be fed continuously from these
silos to the furnaces. Two furnaces, each with a capacity
of 600 tons per day, would be designed and fabricated by
Combustion Engineering. The electrostatic precipitator
would be designed to meet 1975 emission standards. A con-
veyor from the receiving pit to the secondary shredder and
pneumatic pipeline from the secondary shredder to the
furnaces served as material-handling systems.
Manpower needs for the facility were approximately
ten to thirteen men per shift, or 30 to 40 per day.
Operations would be staggered so that each shift would
have about the same number of men. Incineration would
take place around-the-clock. Waste delivery, weigh-in, and
routine maintenance would take place during the first
-------
shift, and shredding on the second and third shifts.
A service representative from Combustion Engineering
would remain on-site for the first full year of operation,
to provide expert technical assistance to the operating
staff.
Financing
Saugus has an A-l general obligation bond rating, with
approximately $8 million bonded debt outstanding. The
assessed property value is approximately $200 million,
and the tax rate decreased from $41.00 per $1000 assessed
valuation in 1969 to $35.20 in 1970.
A recent Massachusetts law, passed in direct response
to the North Shore solid waste problem, allows communities
to establish an Industrial Development Financing Authority
and to arrange for the financing of solid waste systems
through this authority. The financing mechanism is an
industrial revenue bond which, after the appropriate
Internal Revenue Service rulings, carries tax-free
interest. The industrial revenue bonds are in no way
guaranteed by the issuing community, but rather by the
private corporation for whose use the facility is intended
(THESCO). Thus, the corporation must establish its own
credit. In return it is able to obtain financing at
an interest rate 1-to 2-percent less than regular
(taxable} corporate debt.
Under the new Massachsuetts law, the Saugus town
meeting established the Industrial Development Financing
Authority and the specific authorization for solid waste
system financing with Saugus industrial revenue bonds.
Saugus did not contemplate favorable treatment from THESCO,
relative to other user communities, in regard to dump
charges at the new facility; but there were to be
significant benefits for the town in the form of
industrial real estate taxes.
Although Saugus would not be responsible for repayment
of the debt, there were still some political problems
involved in getting town meeting approval. However, voter
uncertainty and fear of being forced into undertaking a
potentially risky venture were eventually overcome after
considerable legal interpretation and explanation.
Since THESCO viewed the financing issue as highly
confidential, it is not known precisely how the corporation
intended to finance the project. Discussions with THESCO
-------
and Saugus officials indicated that industrial revenue
bonds were to be used at some time, but that the complexities
of this mechanism would mean that short- or medium-term
alternatives would be needed to get the project in motion.
The industrial revenue bond mechanism involves
significant legal and administrative complexities. It
requires a considerable amount of preparatory groundwork on
the part of the interested corproation. The first
major hurdle is to obtain an Internal Revenue Service
ruling on the tax-exempt status of the project. (Although
THESCO planned to use alternative financing in the project's
initial stages, it took steps to obtain the IRS ruling
before commencement of work, to ensure the availability of
the cheaper financing at a later date.) An estimated three
to six months are necessary for this procedure. This includes
the preparation of an IRS ruling request by the corporation
and bond counsel, and the IRS review procedure.
Since industrial revenue bonds are secured by revenues
from the solid waste disposal facility, the corporation
must take steps to guarantee a reliable source of long-term
revenue. This was a major task for THESCO, since it
required long-term commitments from potential steam customers
and from potential user communities. Late in 1972, an
agreement was reached with G.E. to purchase steam from the
Saugus facility at specific rates, on a long-term (15-20 year)
basis.
Little firm progress had been made, however, in con-
tracting with user communities for solid waste dumping,
and THESCO faced major obstacles. The proposed dump
fee was $13 per ton, compared with a $6-$7 charge per ton
for the Saugus dump. A number of potential users had
publicly voiced strong objections to what they considered
to be the monopoly power of THESCO. At the time of the
termination of the joint venture, it is understood that
THESCO had no firm commitment from any potential user.
Another politically sensitive factor was the long-term
nature—20 years—of the contract that THESCO sought to
obtain.
Although the exact intentions of the firm are unknown,
THESCO may have planned to user short-term private financing
to build the project. In fact, shortly before termination
of the project, the company announced that construction
would begin "within the month." As the facility neared
completion, user communities would have been faced with the
-------
reality of the dump closing and would have had no choice
but to sign on. This would eventually have given THESCO
the security required for the industrial revenue bond
issue.
Observations
Although the THESCO joint venture was terminated,
it is understood that DeMatteo Construction Company is
planning to pursue the project. It is not known how this
firm will proceed. The major obstacle to industrial
revenue bond financing continues to be obtaining
contracts with user communities.
Informal discussions with a former THESCO partner
indicate that the venture may have been terminated because
of disagreements between the partners, and not because of
problems with the financing mechanisms. Despite legal,
administrative, and security problems, the industrial
revenue bond appears to be a viable financing alternative
for the private corporation.
-------
Seattle, Washington
Seattle, with 531,000 inhabitants and nearly 92 square
miles, is the largest city in the state of Washington .and
the county seat of King County.
This case illustrates the effective and smooth
functioning of a municipal solid waste utility as a
subdivision of another city agency.
Solid Waste System Background
Since 1961, Seattle has operated a system of public
utilities—solid waste, water, sewerage, and electricity.
This unusual feature makes Seattle an interesting example
of solid waste management.^ As part of the City Engineering
Department, Seattle's solid waste utility provides
centralized management for its activities. The utility
subcontracts collection of residential wastes, owns and
operates two transfer stations, and leases two landfill
sites. A team of five inspectors is responsible for the
enforcement of the city's standards for solid waste handling.
During 1964-1965, a team of consulting engineers from
Black & Veatch, Inc. conducted an extensive study to 2
determine the most effective solid waste management system.
Although the consultants recommended incineration, the mayor's
office decided that a transfer-sanitary landfill system
would be more appropriate to the city's needs.
Mandatory collection from households is performed by
two separate private companies working under five-year
contracts with the city.3 Most commercial and other wastes
are collected by licensed independent haulers. In 1966,
Seattle converted its direct-haul system to a transfer-
station operation, utilizing suburban landfill sites.
Two large transfer stations with a maximum daily capacity
Two other cities in the state of Washington operate on this public
utilities concept: Tacoma (population 155,000) and Spokane
(population 170,000).
o
Black and Veatch, Inc. Report on refuse collection; review of
present practices and contract. (Prepared for the city of Seattle,
Washington.) Kansas City, Mo., 1967.
The city is engaged in negotiations to reduce the duration of
collection contracts from five to three years.
-299-
-------
of 2000 tons were constructed, each to service half the
population. The total capital cost for the two transfer
stations was $1.9 million. Figure 1 presents additional
information on the existing disposal system.
Each year, Seattle moves approximately 310,000 tons of
solid waste from its transfer stations to sanitary landfills.
To haul these wastes, the city operates and maintains a
fleet of 18 tractors and 36 long-haul trailers of
100 cubic yard capacity each.1 The total investment in
tractors and trailers is approximately $1.8 million.
The Solid Waste Utility leases two landfills located
outside city limits, at a cost of $0.30 per ton (Figure 1).
The city invested approximately $320,000 in eight bulldozers
and $500,000 in miscellaneous equipment to operate these
landfills. In 1971, the total tonnage at the landfills was
approximately 400,000 tons.
Gross revenues for the solid waste utility were $6.5. million
in 1971. Total collection-disposal cost per ton of waste
is $20.00, of which $15.50 is for collection and $4.50 is
equally distributed over transfer, long-haul, and burial.
Recent Developments
Late in 1971, Seattle improved its weighing system at
the transfer station, to increase both the throughput of
vehicles and transaction security. An IBM System 7 auto-*
mated truck weighing system was installed at each location,
at a total cost of $150,000. The city "anticipates that
the new system will result in cost avoidance in excess of
$100,000 over the next ten years."
Because the Midway Landfill Site is running out of
space, the city took an option on another large potential
disposal site. In February 1973 the mayor's office asked
the engineering department to prepare a study of the collection
options open to the city, including municipally-run garbage
collection. The purpose of this study is to limit future
rate increases growing out of increasing collection costs.
1 In reality, the Engineering Department maintains the
rolling equipment and bills the solid waste utility.
-------
Figure 1
A. TRANSFER STATIONS: open to all private citizens, rubbish
haulers, gardeners, municipalities, school districts, county
agencies, industries, etc. Accept all materials,.
excluding large timbers, car bodies, waste oil or other
flammable liquids.
South Transfer Station
opened: September 27, 1966
cost: $800,000
area site covers: 7 acres
operates: 24 hours a day
total tonnage: (1971) 137,399
North Transfer Station
opened: January 1, 1968
cost: $1,100,000
area site covers: 4.5 acres
operates: 9 hours a day
total tonnage: (1971) 177,421
B. SANITARY LANDFILLS
Midway Landfill
opened: January 31, 1966
cost: $0.30 per ton
area site covers: 60 acres
remaining life: 1-2 years
total tonnage: (1971) 188,950
Kent-Highlands Landfill
opened: July 15, 1968
cost: $0.30 per ton
area site covers: 100 acres
remaining life: 5-7 years
total tonnage: (1971) 208,097
Source: City of Seattle - Solid Waste Utility
-------
The city will be part of King County's regional solid
waste management*plan, to be completed within the next
eighteen months. Up to that date, no major capital
expenditures are expected.
Financing
As of December 1970, bonded debt for the city of
Seattle was $329,497,684, of which nearly 72 percent was
in utility bonds. Tax collections for 1971 amounted to
more than $25 million.
Seattle's solid waste utility is a self-supporting
municipal utility: its obligations (interest and principal)
are payable solely from its own revenues. Revenues
($6.5 million in 1971) are derived from user-charges.
Rate schedules are established by the City Council for
different classes of users, from single-family residences
($2.70 per month including collection) to county agencies
and industrial customers ($4.50 per ton at transfer stations)
The following rates were established for users of the city's
disposal sites and transfer stations:
Passenger cars without trailers:
Operated by city residents No charge
All others $0.50
Minimum charge for cars with
trailers and all other vehicles $1.25 per load
Refuse deposited at disposal sites $1.50 per ton
Refuse deposited at transfer stations $4.50 per ton
Cash transactions at transfer stations are approxi-
mately $700,000 annually. Credit customers make up most
of the business.
Tax on the Solid Waste Utility's gross income is
7 to 8 percent to the city and 1 percent to the state.
To date, the Utility has not issued bonds or made bank loans
1 This plan will investigate several processing methods,
including shredding, baling and recycling.
-------
to finance its capital expenditures. To pay for the
construction of the transfer station, $2 million was
borrowed from the general fund at a rate of 4 percent
interest. The rolling fleet was acquired through a $1.5 million
loan, at 1.5 percent interest, from the operating fund of
the engineering department. At the present time, approximaely
$2 million in loans from these two sources are outstanding
and will be repaid by 1979.
The Solid Waste Utility needs to have its budget approved
by the Engineering Department, the City Council and the
Mayor's Office. In the future, the utility plans to use
the source of financing best suited to its needs. If the
current depressed economic situation persists, it will not
use general funds as a source of capital. As one official
stated, "Garbage trucks will not compete with police cars."
The Utility may use bank loans for the financing of equip-
ment with less than five years useful life and exceeding
$4 million in cost. Otherwise, it could issue its own
utility bonds. Based on yearly audits these bonds are
rates Aa. However, no major capital expenditures are
expected in the near future, except for replacement of
obsolete equipment.
Observations
Seattle manages its solid wastes very efficiently. The
organizational structure provides centralized management of
all solid waste activities, thus allowing maximum economies
of scale. There is, however, a problem in the definition
of a utility. The Solid Waste Utility in Seattle is not
really different from the traditional bureau of solid
waste in any other city. In theory, a solid waste utility
should be directly responsible to the municipal executive.
In Seattle it is part of the Engineering Department. Its
reliance on general or operating funds from another muni-
cipal department minimizes the distinction-between the two
sectors. However, the administrative structure of Seattle's
Solid Waste Utility allows for maximum flexibility in terms
of long-term and short-term borrowings (e.g., utility
bonds, bank loans, general fund, city engineering operating
fund). This means that financial management can be more
effective than in many other situations.
-------
Allegheny County and Pittsburgh, Pennsylvania
Allegheny County in southwestern Pennsylvania covers
a total of 730 square miles, including the 55.5 square miles
of Pittsburgh, the county seat.
The county's 1970 population was 1,654,263; the popu-
lation in 1980 is expected to reach 1,755,268. Pittsburgh
contributes about one-third of the county's population
with 537,855 in 1970. This is expected to drop to 522,795
by 1980.
Allegheny County provides an example of a regional
financing strategy for a solid waste disposal system and
illustrates the type of system which can evolve when
abundant land suitable for sanitary landfill is available.
Solid Waste System Background
Figure 1 summarizes the collection methods used for
domestic refuse in Allegheny County in 1971.
Individual private contractors collect all commercial
and industrial waste in the county. Approximately 50 per-
cent of the refuse collected is exported to surrounding
counties for final disposal. The refuse which remains is
disposed of primarily in open, privately-owned dumps
rather than in "sanitary" landfills. To date, none of
these has been approved as a "sanitary" landfill by the
Pennsylvania Department of Environmental Resources. The
Allegheny Department of Solid Waste Systems anticipates
that the owners of these facilities will make the necessary
operational changes in the near future, and that permits
will soon be issued.
The average cost of collecting and disposing of domestic
refuse in the county is estimated at $2.35 per household per
month. This figure includes all capital and operating costs.
Using 140 trucks, the Pittsburgh Public Works Department
provides domestic refuse collection services for about 85
percent of.the city's population. The budget for refuse
collection was about $5,200,000 in 1972 or $9.67 per capita.
This budget does not include maintenance or fuel costs for
the trucks.
-------
The remaining 15 percent of Pittsburgh's refuse is
collected by National Disposal Company, a private contractor.
A recently signed ten-month contract required Pittsburgh
to pay National $89,000 per month for this service. The
city is currently planning to take over this collection
service when the contract expires, and expects to be able
to provide comparable service for about $57,000 per month.
The refuse collected by the city and by National
Disposal Company is taken to a privately-owned transfer
station within the Pittsburgh city limits. The owner of
the station, the Aloe Coal Company, then transports
the refuse in eleven compactor trailers to its private
landfill, an abandoned strip mine 18 miles away. Approxi-
mately 1,000 tons of refuse is processed through the station
each day. Aloe has 20 men working at the transfer station
and three at the landfill site.
In 1966, through competitive bidding, Aloe received a
contract to dispose of Pittsburgh's domestic refuse at a
rate of $3 per ton. Aloe lost money for 1-1/2 years under
this contract, and in 1968 renegotiated the rate and added
an escalator clause which set the transfer-station-user
charge as a function of the local cost-of-living index. In
1968 the charge was $6.00 per ton. Though the contract
terminated in April 1973, Pittsburgh expects to exercise
two six-month extension clauses built into the agreement.
The current user charge is $7.12 per ton. Aloe also
accepts some commercial refuse at the station for $30 per
ton.
Recent Developments
The passage of the Pennsylvania State Solid Waste
Management Act of 1968 (Act 241} prompted Allegheny County
to initiate a long-range solid waste plan. The office of
Solid Waste Management Systems, prepared the plan and is
now attempting to implement it.
The plan calls for the establishment of ten disposal
districts in the county. Each district is required to
provide a disposal or handling facility to serve the resi-
dents and the commercial-industrial establishments located
within that district. Six of the districts will use priv-
ately-operated landfills and the remaining four will have
transfer stations. Collection arrangements in each district
will be determined by the individual municipalities and are
expected to remain about the same as shown in Figure 1.
-------
The county is currently making arrangements with present
operators of landfill disposal sites to accommodate
designated volumes of refuse in accordance with state and
county health regulations. The county is also acquiring
and establishing land reserves near the disposal sites,
to make certain that disposal sites will continue to be
available at a reasonable cost.
According to Allegheny's plan, the county would purchase
the Aloe Coal Company's transfer station and would build
three more stations. As of this writing, one of these
stations has been constructed within the Pittsburgh city
limits at a cost of $750,000. Two more stations are planned
outside the city.
Allegheny county is currently soliciting private
proposals to operate the transfer stations and to provide
transportation to the landfills. If a financially-feasible
arrangement cannot be negotiated, the county will operate
the stations and transport system itself. The county plans
to charge $5.00 for each ton of refuse processed through
the stations; landfill charges will be determined by the
private owners.
A look at the strategy's impact on Pittsburgh reveals
that the city would receive a $2.12 per ton reduction in
disposal costs as well as a reduction in transportation
expenses because of the judicious placement of the transfer
stations. Pittsburgh's solid waste officials currently
favor the project and expect private collectors to give
their support as well. County officials anticipate that
disposal facilities within its borders will ultimately
handle 75 percent of the refuse generated. Adoption of
the project depends in large measure on Pittsburgh's
ratification. Whether or not traditional county-city rivalries
will hamper implementation of the strategy remains to be
seen.
Financing
Allegheny County's financial affairs are administered
by 3 selected commissioners who are empowered to issue
"commissioner's bonds" up to 5 percent of the county's
assessed value. The commissioners can also levy property
taxes to service the debt and to cover operating service
costs. Simple majority voter approval is required to issue
debt above the commissioners' authorized limit. Financing
through the commissioner-bond method facilitates the fund
process since voter-approval is only required once.
-------
As of January 1, 1970, the county had a bonded debt of
$226,521,183 and an assessed value of $4,899,092,867.
Total county revenues in 1970 were $78,275,961.
Pittsburgh is governed by a mayor-council system. In
1970 Pittsburgh's bonded debt was $89,754,000 on a total
assessed value of $1,331,831,872. The city's 1970 revenues,
generated primarily by real estate and income taxes, were
$92,606,964.
The bonds of both Allegheny County and Pittsburgh were
designated rates A-l according to the Moody Index.
The majority of refuse disposal facilities in Allegheny
County are privately financed by individual owners.
Financing comes almost exclusively from retained earnings.
The Aloe Coal Company financed its transfer station, also
with retained-earnings, at a cost of $1,361,000. The land
for the station is rented from Pittsburgh for $1 per year.
Most of the landfills occupy old strip mining sites.
Pittsburgh pays for its collection services from
normal city revenues. This includes all equipment purchases
and maintenance.
The county plans to finance the capital costs of its
regional plan with commissioner bonds. County officials
currently anticipate that about $4 million will be required
to complete the plan. Initial planning has been financed
with a $147,000 EPA grant, and the county expects to sell
its bonds with relative ease.
Observations
The Allegheny solid waste strategy relies heavily on
voluntary participation of private refuse collectors. To
encourage these organizations to use the county's disposal
facilities, the plan has been designed to cause the fewest
possible changes in the present collection system.
This strategy can be implemented with a relatively small
cost to the county, but the voluntary aspects represent a
risk. The county will have to mount a long-range market-
ing campaign to convince refuse collectors to participate.
Once private collectors approve the plan, Allegheny's
officials can focus their efforts on cementing satis-
factory relations with them.
Financing the regional plan does not present a problem.
The Solid Waste Management Systems Office has convinced the
-------
commissioners of the utility of the plan, and the commission-
ers are willing and able to issue the required debt. Pitts-
burgh should be able to finance its collection service from
current city revenues.
-------
Arbuckle Regional Development Authority/ Oklahoma
The Arbuckle Regional Development Authority is an
association of seven small rural communities located in
southern Oklahoma. The largest community has a population
of 5,158; none of the others has a population over 2,500.
The Arbuckle Authority is one of a small number of
community associations in the country which have relied
on grants or loans from the Farmers Home Administration to
finance solid waste system improvements. In this case,
both the collection and disposal systems will be financed in
full by a'long-term loan. This source of funds is quite
limited, however, and the program is expected to be term-
inated at the end of fiscal 1972-73.
Solid Waste System Background
In 1969, the executive committee of the Southern
Oklahoma Development Association (SODA), the umbrella
agency under which Arbuckle lies, selected solid waste
as a priority consideration. Cooperating with the
state health planner, SODA developed solid waste collec-
tion and disposal practice guidelines. The proposed system
called for hand pick-up and delivery to numerous landfills
in the multi-county area. Normally, SODA would have taken
the primary role in financing the project through a special
trust fund set up for such purposes. Since its charter
forbade the use of those funds for solid waste, however,
other sources had to be developed.
Recent Developments
Initially, SODA applied for funding through the
federally-based Environmental Protection Agency, but their
request was denied. In 1971 the executive committee then
hired a full-time engineer who drafted a new plan that
incorporated a drop-box system. With this second draft,
SODA applied for a loan through what seemed to them to be
the only other alternative, the Farmers Home Administration.
11970 Census of Population.
2
Under the drop-box system, large capacity containers are
placed at strategic locations to facilitate the collec-
tion process. This system has been operative in Chilton
County, Alabama.
-------
The FHA is empowered to make grants and/or loans to
rural communities for water and solid waste facilities.
Although grants and loans are presently limited to communi-
ties of under 5,000, the Rural Development Act will even-
tually consider communities with populations of up to
10,000.
Loans up to 40 years at 5 percent are provided to
a single community or to a group of communities. In the
three years since 1970, the FHA has approved 64 grants
and loans totalling $5,411,900. Although the Administra-
tion has recently terminated its grant program, several
loan applications are still under consideration.
After initial evaluation of SODA's loan application,
the FHA concluded that the proposed collection equipment
would exceed state bridge load limits.
SODA then hired a new project manager to prepare
a plan acceptable to the FHA. Subsequently, a third
proposal for the system was submitted to the FHA. This
plan proposed use of lighter-weight, side-loading trucks,
small three-yard containers, and a minimal number of
landfill sites. FHA approved the plan with certain re-
strictions.
Financing
In approving SODA's proposal, the FHA required that
the project be restricted to a maximum of four counties.
Solid waste fees were to be attached to city water bills.
Thus, the cities were the only municipal units with any
real means of enforcing compliance. There was no legal
requirement for all cities in a county to adopt the plan,
so subscribers had to be solicited on a city-by-city
basis.
Four counties expressed interest in the project and
were joined together in the Arbuckle Regional Development
Authority. These four counties subsequently applied for
a $775,000 loan for a side-loader system. The FHA was
willing to grant this loan, provided that the number of
cities contracting was sufficient to insure adequate cash
flows and pay-back. After some time, two of the counties
were able to contract with a total of seven cities, but
the two others could not obtain a satisfactory number of
subscribers. FHA approved a revised loan of $430,000
for the more successful counties. The loan, which became
effective in January, 1973, will run for 40 years at a
-------
5 percent interest rate. FHA officials anticipate making
a loan to the two remaining counties, at some later date.
Since its creation, the Arbuckle Regional Development
Authority has invested $430,000 in five packer trucks,
1,600 containers, one bulldozer, and site preparation
and miscellaneous start-up costs.
The two-county system will service 5,085 dwelling
units and 335 businesses on a twice-per-week pick-up
basis. Refuse will be collected from containers placed
intermittently on residential property and commercial
lots. All refuse is to be disposed of in a single landfill
site. It is estimated that daily generation of refuse will
fall between 20 and 30 tons.
No additional sources of financing will be used, and
the system is intended to be entirely self-sufficient.
Fees will be $2.50 per residential unit per month, and
$1.50 per cubic yard per pick-up for commercial establish-
ments. As mentioned earlier, these fees will be added to
each city's water billings. Each city will be able to
retain 3 percent of all the charges it collects. A review
of this system by the EPA technical assistance personnel
indicates that cash flows should be adequate to support
all operating expenses and debt service requirements.
Observations
The Arbuckle Authority now has a solid waste collec-
tion and disposal system whic?i will comply with both Okla-
homa and Federal legislative standards, and which is
capable of generating sufficient revenues to cover expenses.
This, of course, is a substantial improvement, since no
solid waste services existed in the past. On the other
hand, several aspects of the current system need to be
examined.
First, the system as it now exists will be serving
only some 14,500 residents, or about 40 percent of the
combined population of the two counties. This assumes that
the contracting cities will be able to enforce participa-
tion in the system by all their residents. Compliance may,
in fact, be very difficult to enforce since these residents
have never paid any sort of fee for solid waste services,
and are now spending $30 per year per household.
-------
Second, the system involves the placement of containers
directly on residential property. This will undoubtedly
create acceptance problems.
Third, calculations by EPA personnel, who provided
technical assistance to the Authority, indicate that the
system "is overdesigned, both in regard to number of
trucks and amount of storage space provided." Excluding
considerations of back-up reserve capacity, the EPA esti-
mated that alternative systems with equivalent handling ^
capacities could have been purchased for $96,200 to $127,400.
This compares unfavorably with the Arbuckle system's capital
.cost of $335,978. If this is correct, residents of the
seven cities are paying considerably more than necessary
for a disposal system.
A final point concerns the source of financing for
the project. In conversations with the administrator of
the Authority, we were told that the system would not have
been implemented had not an external source of capital been
willing to provide 100 percent financing. Why this money had
to come from the Federal Government is not clear, however.
There is no indication that local sources of financing,
such as banks or county bonds, or contracting through
private waste handling firms were given serious considera-
tion. In the basis of this experience, it is difficult to
assess the necessity for Federal participation in the
financing for this type of project.
10ffice of Solid Maste Management Programs, Systems Manage-
ment Division in Cincinnati, Ohio.
-------
Baldwin County/ Alabama
Baldwin County, in southern Alabama, lies on the
eastern shore of Mobile Bay and along the Gulf of Mexico.
Its 1970 population was 59,382, representing a 21 percent
increase over the 1960 census. The county seat and largest
city is Bay Minette, with 6,722 people.
Baldwin County has solid waste problems typical of
many rural counties. With few sources of capital funds
available, the county has chosen to avoid major investment
in either collection or disposal equipment by franchising
all operations to private contractors. The county has been
divided into collection districts and each resident contracts
separately with private haulers. The county has maintained
total operating costs at reasonable levels by specifying
the type of collection and disposal.
Solid Waste System Background
In 1969, Alabama passed its first solid waste legis-
lation, requiring that each county or municipality have
adequate solid waste collection and disposal services within
two years after enactment. This act was amended in 1971
to allow for a one-year grace period, since many communities
had been unable to comply with the two-year limit. At the
time this law was passed, six of the ten municipalities in
the county performed their own collection services; two
towns contracted with private collectors; and two towns
provided no services. Refuse was collected from approxi-
mately 35 percent of the county's residents and delivered
to open dumps at the outskirts of the towns. In all, there
were 16 private collectors operating in the county. These
were largely unregulated with regard to quality or fee
charges.
Recent Developments
The county health officer in charge of enforcing the
new solid waste legislation convinced the Baldwin County
Commissioners to hire a solid waste manager. Several
different types of systems were investigated. One was the
"green box" EPA demonstration system in Chilton County,
Alabama. Under this operation numerous 4-cubic-yard refuse
containers were placed throughout the county. Refuse would
be collected by front-end loaders with a capacity of 30 cubic
yards and delivered to a sanitary landfill. To adopt this
system, Baldwin County would have to purchase 245 4-cubic-yard
J/3
-------
containers and at least two front-end loaders, at a cost of
approximately $125,000. Operating expenses were expected
to be $125,000 per year at the start. Later, yearly costs
would rise as maintenance and replacement costs increased.
The county commissioners explored the possibility of
raising additional revenue to finance such a project by'
increasing the beverage can tax. For undisclosed reasons,
a law suit was filed by a citizen's group to prohibit such
a move, and the proposal was subsequently dropped.
The county commissioners believed that a major educa-
tional and public relations program was an essential
prerequisite to using tax money to finance a solid waste
disposal plan.
While attempting to design a reasonable collection plan,
the county implemented its decision to design and construct
a sanitary landfill. (It appears that no other disposal
alternatives were formally considered.) Since 80 percent
of the population is located in the southern half of the
county, considerable effort was made to locate a site in
this area in order to reduce the average haul distance.
Eventually the county located a 320-acre site which could
be leased from the U.S. Navy for $1 per acre per year.
Several years earlier, Baldwin's highway department
might have operated the landfill site. However, since a
county consolidation plan had transferred highway operations
to the state no channel through which the county could
funnel solid waste disposal responsibilities existed. Rather
than set up a new agency, Baldwin prepared sanitary
landfill operating specifications and released them for
bidding by private contractors. Four bids were submitted
ranging from $1.42 to $3.00 per ton. This compared with
county-prepared estimates of $1.72 per ton at a level of
65 tons per day (or 85 percent collection).
Baldwin then drew up a contract with the lowest bidder,
a local earth-moving contractor. Its provisions were as
follows:
1. The county would provide the landfill while
the contractor would purchase all heavy
equipment needed to dispose of the refuse
and operate the site. The contractor would
charge Baldwin County a fee.
2. Disposal fees would be paid at the site and
the county would guarantee receipts equival-
ent tc 20,000 tons per year.
-------
3. Fifty-five percent of scale receipts for
tonnages over 30,000 tons per year would
revert back to the county to help cover
initial capital outlays required for
site preparation.
To meet the guaranteed minimum tonnage, the county
had to encourage reorganization and expansion of
collection services. Since neither the county nor the
cities wished to assume responsibility for collection
themselves, it was suggested that the sixteen private
collectors collaborate to handle collection in accordance
with county requirements.
The collectors subsequently formed an association and
negotiated a five-year contract with the county. Under
the terms of the contract, the collectors had to provide
curbside service to anyone requesting it. The county
would require the closing of the existing open dumps to
encourage the use of the service. At the same time,
each collector was required to obtain a $1000 permit to
continue operations, and had to put up a $50,000 performance
bond. This requirement was intended to eliminate companies
lacking financial stability. In the end the association
numbered 10 participants.
Under the present system, residents are not required
to subscribe to this collection service. They have 2
alternatives:
1. Residents can personally deliver their
refuse to the landfill and pay a charge
of $1 for any load up to 1400 pounds,
and $1.42 per ton for the excess.
2. They can dispose of refuse on their own
property providing that they conform
to requirements applicable to landfill
operation.
Currently, between 40 and 50 tons of refuse are
delivered to the landfill each day. Based on a 3 pound per
person per day refuse generation rate, this represents
approximately 55 percent collection coverage, or 12,500
to 15,000 tons per year. This falls far short of the
Competitive bids were not legally required since no county
money was to be committed. Furthermore, a state law
prohibits the awarding of exclusive francises for such services
-------
•
guaranteed minimum of 20,000 tons. The $4,500 to $7,500
lacking in receipts will have to be appropriated out of
+•^10 r«rtiin^\7'e rronova 1 fun^
the county's general fund.
All residents in Baldwin County are subject to the
terms of these collection and disposal arrangements except
those living in Bay Minette, the county seat, which owns
and operates its own collection trucks and sanitary land-
fill. According to the county solid waste manager,
monthly operating expenditures for disposal average between
$1,200 and $1,500. In 1971, Bay Minette spent approximately
$81,000 for all its solid waste services. The city has
one army surplus bulldozer and an old front-end loader with
which to operate its landfill. The landfill is located
30 miles outside city limits. No special charges for
solid waste are levied. The city has shown no interest in
using the county's system.
Financing
The outstanding general obligation bonded debt for the
county was $1,125,000 as of September 1969. Assessed value
for 1968-1969 was $73,896,800. Capital outlay bonds are
initiated by the County Board of Commissioners and are
payable out of a 5 mill county-wide ad valorem tax.. Other
sources of county revenue are cigarette and beverage sales
taxes.
Under the terms of the contract with the landfill
operator, the county was required to provide a site ready
for use. Preparation costs of $27,000 included 1-1/2 miles
of paved access road, fencing, a field office, a 50-ton
portable scale, soil analyses, and digging a 70-foot well
for leachate testing. This money came from an excess in
the county's courthouse amortization account. As indicated
earlier, the contractor will gradually reimburse the county
for this expenditure out of its scale receipts, once
deliveries exceed 30,000 tons per year. No capital
investment in heavy equipment was required since this is
supplied by the contractor. Operational expenses for the
county are minimal, consisting of a monthly electric bill,
a lease payment, insurance, and the salary of the county
solid waste manager. These expenses will be paid out of
general county revenues.
The landfill operator uses a tractor bulldozer
full-time, and an elevating scraper part-time at the site.
Personnel include two full-time employees and one part-time
scraper operator.
-------
Observations
Baldwin County has adopted a strategy calling for a
minimum commitment of county funds to solid waste collec-
tion and disposal. They have been able to do this by
contracting with private companies to handle both functions,
while maintaining a degree of control through performance
bonds and ownership of the disposal site. Admittedly, costs
to operate the site are artificially low, but overall
system costs average $20 per ton,1 a reasonable rate for
a rural area. Since the county made no significant capital
outlays, capital financing was never an issue.
Winning community support for the system remains a
serious problem for Baldwin County. Since 65 percent of the
population has never had solid waste services and has never
paid any sort of service charge, many people are reluctant
to contract with private collectors. Instead, they either
hand-deliver their refuse to the collection site, or bury
it on their own property, supposedly in accordance with
strict standards, or dump it wherever possible. Hand
delivery is inefficient and undesirable. The second altern-
ative appears to be used very little. Since Baldwin must
subsidize landfill operating costs until 20,000 tons are
delivered annually, efforts to increase the number of
subscribers to collection services rank first among
county priorities.
Calculated based on a $2.25 per dwelling per month charge
and assuming: (1) 3 Ibs. of refuse per capita per day,
and (2) 2.5 persons per dwelling.
-------
Brevard County, Florida
Brevard County occupies a strip of land in East-Central
Florida, 75 miles long and 25 miles wide. Three major
cities lie within its borders, and the county's population
in 1970 was 230,000, up 106 percent over 1960, and 972
percent over 1950.
Brevard County is currently seeking to finance county-
wide solid waste disposal system including a landfill and
a transfer station. The county's efforts to select the
best system, to ensure the cooperation of all political
subdivisions, and to evaluate financing alternatives,
provide an example of sensitive and careful handling of
the solid waste problem.
Solid Waste System Background
Brevard County has never used incinerators. Although
some municipalities and county-franchised collectors operated
landfills four or five years ago, sites were owned by the
county. As part of Brevard's long-range program for im-
proved solid waste disposal, the County Utilities Department
took over operation of all landfills in May, 1971.
Recent Developments
Increasing concern about the environment combined with
the pressures of population growth to bring the solid waste
disposal problem to the fore in Brevard County. A Florida
state law against open-burning dumps underlined the urgency
of developing new disposal techniques. In 1972, the county
was awarded a demonstration grant by the EPA. Here is how
Brevard County described the deficiencies in its present
solid waste system:
1. Lack of regionalization making small local
communities unable to develop technical
progress in handling and disposal techniques;
2. Inadequate and inequitable rate systems and
lack of constant review;
3. Erratic enforcement making solid waste
operations more a nuisance than a benefit;
4. Lack of resource recovery program considera-
tion;
-------
5. Inadequate cost controls from a lack of
cost center concepts and failure to use
accounting techniques;
6. Lack of public understanding of solid waste
management problems; and
7. Insufficient concern with environmental
impact of solid waste systems.
In preparation for a solution to the solid waste
disposal problem, the county persuaded the Florida legisla-
ture to pass a special state law in 1967 (revised in 1970}
that would enable the Board of County Commissioners of
Brevard County to:
1. Construct, operate, and maintain a solid
waste disposal system for the use and
benefits of the inhabitants and munici-
palities of Brevard County;
2. Compel the inhabitants of Brevard County
to use the disposal system established by
the county;
3. Prescribe and collect fees or other
charges for the use of such a system and
pledge such revenues as security for the
payment of bonds issued under said statutory
authority for the construction of a
solid waste disposal facility;
4. Pledge non ad valorem revenues of the county
in support of required interest and principle
payments on said revenue bonds.
The power given to the county to enforce the exclusive use
of its disposal system is an outstanding feature of the
legislation. This prevents city-county rivalries from
undermining the regional disposal strategy.
On December 30, 1970, the board of county commissioners
directed the joint venture team of Leonard S. Wegman, Inc.
and Reynolds, Smith, and Hills, Inc. to perform an in-depth
study of solid waste disposal problems in Brevard County.
The $75,000 study was completed in six months; the report
was presented to the board of county commissioners on
July 15, 1971.
-------
The joint venture group considered thirteen possible
solid waste processing and disposal procedures. They
weighed each alternative according to environmental impact,
functional efficiency, and economic feasibility. The
thirteen alternatives are listed below in order of prefer-
ence :
1. Shredding and milling
2. Conventional incineration
3. Incineration with heat recovery
4. Pyrolysis
5. Slagging and incineration
6. Fluidized bed incineration
7. Total resource recovery
8. Wet fiber extraction with fluid bed incineration
9. Compaction and baling
10. Sanitary landfill
11. Composting
12. Ocean disposal
13. Open dumping
The study group suggested that Brevard County establish
a primary, centrally-located disposal facility with transfer
stations located in both the north and south. It recommended
truck haul, rather than rail or barge haul, for its economy.
The central disposal facility would be a shredding and milling
operation, capable of shredding 75 tons per hour of unsorted
municipal refuse, including major applicances. This would
be the first known use in the United States of this type of
facility for unsorted municipal refuse. (In the past, such
large machines have been used only for shredding automobiles.)
Ferrous metals would be separated magnetically for sale to
metal processors. An effort would be made to establish
markets for ferrous metals as well as for paper products
and other salvagable material. The remaining shredded
refuse would then be deposited on top of the ground, on an
impervious membrane and leachate would be returned to a
central treatment facility. Transfer stations would utilize
standard push pits and compression packing of 65 cubic
yard transfer trailers.
The board of county commissioners accepted the results
of the joint venture study team and gave authorization to
proceed with the final design.
Financing
Brevard had, as of 1970, countywide bonded debt out-
standing of $14 million and special tax school district
-------
indebtedness of $31 million. Debt is rated Baa. Tax collec-
tions in 1970 were $30 million, with an assessed valuation of
$215 million.
Brevard officials contacted William R. Hough & Co..,
which has served in the past as its financial advisor.
Hough then prepared preliminary material for a bond resolu-
tion and offering circular, which included costs totalling
$6,770,000.
The issuance of revenue bonds in this amount was
approved by the board of county commissioners in 1972.
Hough & Co., wishing to maintain its role in the local
environmental activity, recommended a negotiated placement
at 7 percent, with itself as underwriter, even though the
bonds were backed by the county's authority to use any non
ad valorem revenues, to enforce site use, and to set rates
high enough to cover bond payments.
Here it must be pointed out that it is customary for
the financial advisor to receive a fee if he does not win
the bond bidding. If, on the other hand, he should win
the bid as underwriter his advisory fee is incorporated into
his gross revenue from that underwriting. A number of
Brevard's officials felt that Hough & Co. should perhaps not
serve as both financial advisor and potential underwriter
and that the issue should be open for competitive bids.
They also considered 7 percent too high a rate. Contacts
with several other investment bankers confirmed their opinions
When the county asked its financial advisor whether or
not it could have its issue incorporated into Florida's
AA-rated (5 to 5-1/2 percent) pollution control bond issue,
Hough advised that it would not qualify. To procure an
unbiased judgment on the matter, the county then applied
to the state, and was duly qualified for the issue. Hough
& Co. then stated that in its opinion the delays involved
in state financing would be a serious disadvantage to
Brevard County.
At present, Brevard is awaiting the issuance of the
first state of .Florida pollution control bonds and subse-
quent receipt of their share of the proceeds. Should
delays prove unacceptable, Brevard County is prepared to
go to the market for competitive bids on its revenue bond
issue.
-------
In the interim, the county has received a $250,000
solid waste demonstration and resource recovery system grant
from the EPA. These funds, together with $318,000 of
projected landfill-user fees, will reduce the required
bond amount. The EPA grant was awarded, in part, to en-
courage the county to set equitable landfill-user fees and
collection charges. Bids were taken several months ago on
shredders and the county chose a 75-ton per hour Williams
Shredder. Specifications for the shredder and crane equip-
ment were needed so that the consulting engineers (employed
as part of the bond resolution) could design buildings of
an appropriate size. Engineering and financing delays have
now pushed the projected completion date for the system from
late 1973 to mid-1974.
County officials believe that the use of federal
funding raised construction costs about 15 percent, since
there were prolonged delays in receipt of funds by construc-
tion contractors. Since the Federal Government is known
for its delays in payment, contractors usually raise their
prices on Federally funded construction.
Observations
This case illustrates a possible conflict of interest
when one firm serves as both financial advisor and under-
writer. In Brevard County, alert and conscientious solid
waste officials were concerned about the issue and chose
not to accept what they considered biased advise.
-------
Broward County, Florida
Located on Florida's lower east coast between
Dade and Palm Beach Counties/ Broward County boasts one
of the highest growth rates in the nation. Its current
population is over 620,000.
Broward County's solid waste disposal problem is not
unique. While the volume of wastes is rapidly increasing,
current disposal methods principally have either reached
their capacity or else are threatened with shutdown because
they violate air pollution standards. Broward County's
situation is further complicated by the high water table,
which precludes the landfilling of unprocessed putrescible
wastes.
This is an example of a strong local government
determined to maintain an active role in solid waste manage-
ment.
Solid Waste System Background
As in many Southern states, the;county enjoys strong
local government. In the area of sojLid waste management,
the county has responsibility for all the unincorporated towns
and, more recently, for some of the Incorporated towns that
no longer wish to manage their own solid waste sector.
The permit district is the unit for solid waste col-
lection in Broward. Private collectors bid for exclusive
permits to collect residential refuse in the eight different
districts. Permit holders also service commercial and
industrial establishments, but not on an exclusive basis.
The county sets the residential rates, but the commercial
and industrial prices are determined by competition among
the permit holders. All refuse is deposited in two county-
owned and operated incinerators, a northern and a southern
facility, and a privately-owned and operated shredding
operation. Each collector pays a flat $5 per ton dumping
charge.
The county's northern incinerator has just been modi-
fied to increase its capacity from 300 tons per day to
500 tons per day. The southern incinerator currently dis-
poses of 300 tons per day. The shredder owned and operated
by Waste Management Inc. has been working almost to its
capacity of 500 tons per day.
-------
Recent Developments
Broward County must decide what to do with two incin-
erators which currently violate the air pollution stand-
ards, yet which are working at capacity.
Two factors severely limit the alternatives: environ-
mental acceptability and time. Broward'a high water table
unquestionably prohibits landfills without extensive pre-
cautions. At the same time, air pollution standards are
being enforced, and the Florida legislation requires that
violating incinerators be closed by January, 1974.
Capacity for at least 500 tons per day is needed
till that time, yet within the remaining months, it seems
impossible to engineer and build an addition to the
existing incinerators, even if the air pollution problems
could be solved.
Financing
Both of the original incinerators cost $3.13 million.
The 200 ton per day addition to the northern incinerator
cost $2.6 million.
Revenue bonds financed the county's two incinerators
as well as the capacity-addition to the northern facility.
According to plan operating costs and debt service should be
met by disposal fees. However, the $5 per ton rate does
not cover the operating cost of the incinerator. Since
the bond contracts require the county to subsidize any
deficit from general revenues, Broward*s annual contribution
has sometimes exceeded $200,000.
Design and construction of Waste Management Inc.'s
shredding operation cost just over $500 thousand and
was financed by the firm's internal cash flow.
In looking at its solid waste problems, Broward
County has decided that shredding and landfill are the
only environmentally acceptable disposal methods that
could be implemented within the time constraint. There
are then two ways to implement the system. The county
either may build and operate the system itself, or it
may select a private firm to build and operate it.
A number of firms have already made proposals. Waste
Management, Inc. proposes to add to its existing facility
at no capital cost to the county. The present $5 per ton
-------
dumping fee would also be maintained. Other private firms
have made proposals to build andi operate the shredding
operation on the existing incinerator site at no capital
cost to the county.
The county is also evaluating its own designs. These
indicate that a system with the needed capacity, built
within the allotted time, would cost about $1.2 million.
The county currently favors owning and operating
its own facilities. There are a number of reasons for
leaning away from the private sector. ' For one thing,
legal covenants contained in its two outstanding revenue
bond issues preclude granting of any franchise, license
or permit for an operation competitive with its own
Waste Disposal System.
There is good reason for this covenant. Since the
refuse is collected by private operators, and since the
dumping fees are the same regardless of the facility,
the collector chooses a disposal site because of its
location. If a private company is allowed to build a
facility that is more convenient than the county's, the
county will lose revenues needed to pay off the bond.
In fact, Waste Management, Inc. is presently operating
a system in apparent violation of the covenant. According
to the commissioners, this situation has not caused any
problems yet because the volume of solid wastes has been
growing more rapidly than predicted. Therefore, the
company's system has not reduced revenues enough to affect
bond repayment. This would not be the case with the new
facility because it would be used to replace incinerator
capacity.
As of early February, the county had not identified
the source of funds to build the system. Their options
are limited. It would be difficult to sell a revenue
bond in addition to existing revenue bonds that are tied
to an incinerator that has to be closed. General county
revenues are, by law, required to be used only for projects
that benefit the whole county—not just one segment.
Straight bank loans are being evaluated, but the feeling
is that there is little hope of securing adequate financing
in this manner. Thus, in the end, the 'lack of available
capital may force Broward to turn to the private sector.
-------
Observations
Traditional public-private sector conflicts over
reliability and control also enter Broward's case. The
impending lay-off of personnel who now operate the incin-
erator is yet another factor.
Although Broward County represents only one example,
it is significant to note its determination to build
and operate a facility despite the existence of a local
firm with a reliable record of performance which currently
operates a similar system.
-------
DeKalb County, Georgia
DeKalb County is situated in north central Georgia
and overlaps the Atlanta metropolitan area. It currently
has a population of 414,000 and this is expected to
increase annually by 15,000.
DeKalb County was forced to reconsider the economics
of incineration following the passage of federal air
and water pollution legislation. Fortunately, the county
was in a good position to upgrade its system through the
use of general obligation bonds. The ease with which
these monies were obtained is underscored by the complete
change in the application of the funds after the bond
issue was passed. In fact, the county reconsidered its
alternatives and ultimately settled on a capital expendi-
ture of considerably less magnitude than anticipated.
Solid Waste System Background
Traditionally, the county has collected residential
refuse in all except six small municipalities. (These
six towns own and operate their own collection trucks.)
Before 1971, commercial and industrial refuse was collected
by private haulers. At this time, the county assumed
total responsibility for all collection services because
of continual complaints about the quality of the service.
The Sanitation Department currently operates 22 frontloaders,
98 rear loaders, and 33 side loaders.
All disposal facilities have for some time been owned
and operated by the county. Until recently, DeKalb has used
two facilities to dispose of all of its1 solid wastes. One
is a rotary kiln incinerator built in 1963 for $2,300,000,
with a design capacity of 600 tons per day. Air pollution
control is achieved through a baffle-wall and water spray
system. The other facility .is a sanitary landfill known
as the Buford Highway Landfill. Together, the two sites
currently process approximately 1,330 tons daily.
Recent Developments
In the latter part of the 1960's, DeKalb County was
confronted with the need for major capital investment in its
solid waste system. Changes in federal air pollution
control standards meant that its incinerator was in
violation of particulate emission limitations. Further-
more, the dramatic increase in population over the decade
-------
had put a severe strain on the processing capacity of
existing facilities.
In 1968, an engineering consulting firm was
commissioned to examine the entire solid waste system and
to propose alternative systems. As a result of this study,
the County Department of Sanitation decided to purchase a
new landfill site and to enlarge and modify its incinerator.
The county then hired a local firm to design and
estimate the cost of incinerator modifications.^ Estimated
costs were: $1,500,000 for a new kiln; and $1,580,000
for air pollution control equipment. In addition, plans
called for spending $3,000,000 for the new landfill site
and associated equipment.
With these estimates, the Board of County Commissioners
went to the voters and asked approval for a $15,200,000
various purpose general obligation bond issue. This was
granted in December, 1970. Included in this amount was
$6,080,000 for garbage disposal. In the following year,
construction bids were opened. The lowest price for
modifications to the incinerator came in at $4.6 million,
or $1,520,000 above the estimated cost. This price
included no guarantees for the adequacy of the proposed
air pollution system's ability to meet effluent limita-
tions. •
At about this time, the county hired a new director of
solid waste. He decided that the county should re-examine
the alternatives, in view of the "excessive" bid price.
Additional uncertainty over the future direction of air and
water pollution control legislation led the department to
"moth ball" the incinerator, and to invest in a shredding/
landfill disposal system. This alternative had suddenly
become very attractive when the County Health Department
decided to allow shredded refuse to go uncovered for a
period of up to one year.
Black and Veatch, Inc. Report on refuse collection and disposal and
cost of service for DeKalb County, Georgia. Kansas City, Mo., 1968.
2
Robert and Company, Atlanta, Georgia, an established and highly
regarded consulting engineering firm. The cost of this study was
reported to be $84,000. (Engineering study; solid waste disposal,
DeKalb County, Georgia, 1970.)
-328-
-------
Two companies were selected to supply shredding
facilities.1'2 Suppliers'were selected on the basis of
past reputation and bid price. The plants were expected
to go on line December 14, 1972. Following a testing and
break-in period for the new equipment, the incinerator will
be closed in May of 1973.
The new systems will have a combined rated capacity of
125 tons per hour of operation. With the purchase of a new
55-acre fill site, it is expected to meet the needs of the
community until 1976.3 During that time, it is anticipated
that new sites will be purchased.
The total cost of the two shredding plants will be
$921,000. In addition, $281,000 is being spent on transfer
station equipment, bringing the equipment expenditure to
$1,202,000. The remainder of the capital funds will be
used to cover: (1) building and site preparation costs
at the shredding plants; (2) construction of a transfer
station at the old incinerator; (3) purchase and prepara-
tion of the new landfill site; and (4) miscellaneous equip-
ment needed to upgrade general sanitation department
services.
Since construction was not completed at the time of
the interview, total system capital costs, as well as steady
state operating costs, are unknown.
Financing
Annually, each county operating department submits a
capital and an operating budget request to the Board of
Commissioners. After the Board negotiates specific budget
line items with each department, it determines the amount
of monies needed for the capital improvements to be debt
financed. This determination is made on the basis of
projected tax revenues for the coming fiscal year.
In the past, all capital, except that used for water
and sewage treatment plants, has been raised by general
The Heil Company and Eidal International Corp.
2
Officials felt that having two companies would create the
competition necessary to insure optimum performance.
3The plants themselves are expected to last 30 years.
-------
obligation bonds. As of September 1970, the debt capacity
of the county was $100,066,243.1 Net bonded general
obligation debt outstanding prior to the $15.2 million
issue was $26,962,000, representing a 2.18 percent ratio
of net bonded debt to assessed value, or $67.41 of debt
per capita. These bonds have been rates A-l.
The county has usually issued general obligation bonds
on an as-needed basis, and has included many capital
improvement projects in one issue. Furthermore, these
"various purpose" issues often do not specify the use to
which the funds will be applied. This was the case with
the December 1970 issue.
Operating revenues are primarily derived from user
charges and contributions from the general fund.2 During
1970, user charge income accounted for 83 percent of total
operating revenues ($5,465,000), while the general fund
contribution was 13 percent. User charge rates during
1971 were: (1) $34.38 per household per year;3 and (2)
$.90 per cubic yard for commercial service.*
In the past few years, new department management has
established a depreciation (sinking) fund intended to
finance all collection truck replacements. Trucks are
currently depreciated over a five-year life.
Observations
Faced with the need to enlarge the capacity of the
solid waste system and to conform to new operating require-
ments, DeKalb County appears to have made a reasonably
cost effective decision. Doubts over the real costs of
adequate air pollution control equipment seem well founded,
The constitutional debt limit is 7 percent of assessed
valuation of property, subject to ad valorem taxes.
Assessed valuation is 40 percent ofestimated actual
property value.
2General fund contributions are used to subsidize operating
deficits. Political approval for user charge increases has
been extremely difficult.
Residential service is twice-a-week, backyard pickup.
4At these rates, commercial revenues are partially sub-
sidizing the cost of residential service.
-------
given the experience in other geographical areas. Further-
more, it is probable that the new system will have a lower
capital cost per ton of capacity and perhaps also a lower
operating cost per ton than the originally intended system.
What is not clear is whether or not needed incinerator
modifications might have been made at an acceptable cost.
Nor is it apparent that the shredding-landfill system
will have a lower overall annual cost per processed ton
than other alternatives.^
Departmental management has demonstrated a strong
sense of responsibility towards developing a system within
the confines of the dollar amount approved by the voters
in 1970. In addition/ the chosen system should allow
for considerable flexibility should legislation, or the
economics of the alternatives, change.
Finally, given the typical format of the issues used
to generate debt capital in DeKalb County, the relative
ease with which capital is raised for solid waste disposal
must be viewed in the general context of all county capital
financing needs. With a substantial general obligation
debt capacity reserve, and an A-l bond rating, it is
likely that DeKalb County will not have any problems in
raising solid waste capital.
For instance, it was apparent from the interview that
material recycling had been ruled out because it was
not considered competitive cost-wise.
-------
Orange County, Florida
Orange County has a population of 344,000. Centrally-
located Orlando is the county seat and largest city, with
a population of 99,000.
Orange County's experience in establishing a regional
solid waste system illustrates the kind of problems that
may occur when a disposal system is upgraded. Specifically,
the problems included inaccurate pro forma calculations,
failure to ensure total countywide participation, and
insufficient attention to the critical evaluation of
financing alternatives.
Solid Waste System Background
Before 1970, the county solid waste system consisted
of a series of county-owned landfills and open dumps (often
burning). The city of Orlando maintains one city-owned
landfill and two city-owned incinerators. One incinerator
has never been opened because of engineering difficulties.
(The case is now in the courts.) The other incinerator is
very old. Although the city of Orlando maintains its own
disposal system, garbage and items that are difficult to
dispose of are often brought to Orange County landfills.
Charging only for disposal of garbage, the county landfills
and dumps were cared for by nominally paid "caretakers,"
who had salvage rights. While no county equipment was
supposed to be used in salvage operations, this rule was
not always observed. At least one caretaker realized
large profits from salvage activity.
Recent Developments
In 1967, the Orange County Planning Board began to
prepare a series of proposals for improved solid waste
management. They were prompted by a growing concern for the
environment and expending population. They also knew that the
county could not operate open burnina dumps indefinitely.
Up until this time, most county landfills had been
clay pits resulting from road construction. The 1967 study
gave the county an increased awareness of solid waste
disposal problems. One result was an increase in the charge
for dumping garbage at county sites, from $.10 per cubic
yard to $.40 per cubic yard.
-'-Florida state law now prohibits open burning.
-------
In 1968, the Orange County Planning Department presented
a new proposal for countywide solid waste disposal. This
$1,700,000 plan included five transfer stations and a
landfill, serving the needs of the entire county. The
projections upon which the Orange County Planning Department
based its estimates' of future operating expenses and
revenues included a 1970 population figure of 408,000 people,
generating 1,233,000 cubic yards of solid waste annually.
In 1963, that solid waste volume had been 865,000 cubic yards.
Volume was expected to increase to 1,900/000 cubic yards by
1990.
Projected gross revenues were based on a $.32 per cubic
yard landfill charge, plus additional fees of $.32 to $.41
for transfer station drop-off. These charges would be levied
for trash as well as garbage. The pro forma statements
projected a net revenue in each future year large enough to
cover debt service completely, and to provide cash flow for
reserves and a sinking fund as well. The total capital
budget was considered adequate, but with no room for contingencies,
The estimated capital budget for the main landfill site was
prepared on the basis of discussions with realtors and land
owners. Estimates for tractors, trailers, and hoppers were
based on preliminary figures.obtained from equipment
manufacturers.
Each transfer station was to have a ramp and enclosures
where refuse would be dumped into a large bulk transport
trailer. Material would then be compacted and hauled to
the main disposal site. The bulk transport trailers were to
have a capacity of approximately 75 cubic yards and would
provide a much more economical method of hauling waste than
the conventional 20-yard packer truck. The fees at each of
the transfer points would be adjusted to cover the cost of
transfer operations, the bulk haul transportation, and the
disposal fee at the main landfill site. Municipal collectors,
commercial operators, and private individuals would be
allowed to deposit materials at the transfer stations.
The Orange County Board of County Commissioners approved
the County Planning Commission's solid waste disposal plan.
Next came the search for financing.
Financing
As of 1970, Orange County had county-wide bonded debt
of $13,500,000 general obligation and $3,000,000 revenue,
excluding special school district debt. The road revenue
bonds were rated Baa and the general bonds Aa. Tax revenues
were $'29 million in 1970.
\
.333
-------
Although the county discussed financing with several
municipal financial consultants, they relied most heavily for
advice on the Orlando branch of a national underwriting and
municipal financial consulting firm, Stone and Youngberg.
The firm recommended a revenue bond at an approximate 6 percent
interest cost. Although a true general obligation bond could
have been floated at about 50 basis points less yield, such
a bond would have required approval by the electorate.
The financial consultants and county officials believed that
approval would be very difficult to obtain, although no
solid waste bonds had ever been voted down. They also
believed that the expense of an election and increasing
construction costs over time made the revenue issue the
better choice. The financial consultants thought that, as
a general rule, problems have usually reached a crisis stage
before financing is actually sought. This would make
time a crucial factor.
The form of the revenue bond proposed, however, was.
similar to a general obligation issue. Although the principal
and interest thereon are secured primarily by a pledge of,
and prior lien upon, the gross revenues derived from the
operation of the Orange County solid waste disposal system,
they are additionally secured by a pledge of whatever other
general county revenues may be necessary to meet bond service,
with the exception of ad valorem tax revenues.
Before bonds could be issued, it was necessary for the
Florida state legislature to pass a special law enabling
Orange County to issue revenue bonds for the purpose of
financing a solid waste system. Even with this law, all
bonds must be validated by a state circuit court at a hearing.
At this hearing, testimony is heard from engineers and
financial consultants, and the judge renders an opinion.
There is then a 30-day appeal period.
Stone and Youngberg, acting as underwriters, presented
the county with an offer to purchase the bonds. Before
making the offer, the firm had prepared a six-page bond circular
describing the prospective issue. The circular was shown to
potential customers and almost all the issue was, in fact,
placed before Stone and Youngberg bid.
The pro forma operating, capital expenditure, and income
figures contained in the circular distributed by Stone and
Youngberg came directly from the Orange County Planning
Department. The underwriter substantiated only the population
figures and the estimated volume of waste per capita. No
attempt was made to validate operating projections.
-------
The majority of the 6 percent bonds were issued in
October 1969, at about 95 percent par. The remainder of
the issue was held for the next year, when the funds would
be needed. The county acquired a 1500-acre landfill site
in 1969.
The figures in the financial plan proved to be overly
optimistic in three areas: usage, operating costs, and
charges. The Board of County Commissioners did not, in fact,
set charges as high as the bond resolution required.
Usage was lower than anticipated because Orlando chose
not to participate in the system, and because population
projections were too high (408,000 estimated for 1970 versus
an actual 344,000). These factors resulted in a volume of
approximately 1 million cubic yards in fiscal 1972 instead of
the anticipated 1.3 million cubic yards.
Orlando's decision not to join raised serious issues.
Although the bond resolution required that the county,
(which is responsible for franchising collection in
unincorporated areas) franchise in such a way that there
would be no competing disposal mechanism, the city of Orlando
did not come under the county's jurisdiction.
Following Orlando's decision, the consulting engineering
firm of V.T.N., Inc. updated the Orange County plan to
include three county transfer stations and one large county
landfill. Orlando's two incinerators and one landfill station
were left under the city's jurisdiction. This master plan,
approved by the Board of County Commissioners, included two
future lakes and a future golf course, as well as facilities
for hauling garbage from Orlando should that be required in
the future. The main landfill opened five months late, in
June, 1971; the first transfer station several months late,
in February, 1972.
Cost estimates proved to be far too low. The proceeds
from the $1.7 million bond issue will be completely spent on
the main landfill, one transfer station, and equipment,
instead of being adequate for a second landfill and five
transfer stations. Operating costs of $450,000 in 1972,
excluding depreciation, appear to match projections, adjusted
downward for volume. However, only the landfills had been
^operating in 1972. A transfer station had only just opened at
"the end of the year. This suggests that operating costs were
not adequately estimated.
Revenues ($325,000'in 1972) have fallen far below the
expected $785,000. This is a result of lower-than-anticipated
-------
usage and the Board of County Commissioners1 failure to set
rates as required in the bond resolution. The resolution
required that rates be fixed high enough to cover all
operating expenses, as well as 25 percent of the bond interest
and principal repayment. The county commissioners felt that
setting substantially higher rates would make their waste
disposal system unacceptable to member communities. As a
result of the low revenues, rates were raised in October, 1971,
but the increase was not large enough to cover operations.
The effect of the revenue shortfall of $125,000 has been
somewhat mitigated by a demonstration grant obtained from
the EPA with the help of V.T.N. Inc. The grant is being
used for a study of landfilling in high water table areas.
Funds amounted to $200,000 in 1971; and $150,000 in 1972 and
1973. However, $90,000 to 95,000 of this grant was used
solely for data-gathering in 1972 and 1973, paying for a contract
with Florida Technical University for a series of test-
monitoring wells.
As a result of their numerous problems, the county was
operating only one model landfill, one transfer station,
and one old, sometimes burning, dump. Equipment from the
highway department was used in February 1973, at nominal cost.
The board left the dump open, because it is such a long
distance to the nearest facility that transportation costs
are extremely high. But the federal government is requiring
dump closing as a condition of the demonstration grant.
The city of Orlando maintains its old incinerator at
the prison farm, one landfill, and one non-working incinerator.
Although rates were increased in October 1971, revenues
still have not proven sufficient to meet operating expenses,
and a major rate increase was scheduled for March 1, 1973.
One factor leading to the rate increase is that the city of
Orlando usually brings difficult-to-handle items to the
Orange County landfill rather than its own. Furthermore, when
Orlando's incinerator breaks down, all its garbage and refuse
is hauled to county facilities.
Even with these additional charges, a further capital
inflow of $800,000 is needed to build the second transfer
station. The county's financial consultants believe there
will be no problem in issuing a second lien in order to
raise the money. They think that only a 50 basis point
Revenues of $325,000; operating expenses of $450,000
-------
concession, relative to the first issue, will be necessary,
despite the fact that the Orange County facilities have
never been self-supporting.
The financial consultants seem unaware that the
state of Florida will approve the issuance of bonds for
the purpose of improving the environment. Funds from these
bonds can be used by the political entities within the
state at a favorable interest rate. Since the full faith
and credit of the state of Florida would be^pledged for such
bonds, they could be offered at 100 or more basis points
lower than a second lien issue. Orange County does not
seem to be considering this option, however. Instead, it is
waiting to see what revenue-sharing funds will be available,
before going ahead with a second lien bond issue.
Observations
This case shows what happens when crucial factors are
not thoroughly evaluated, namely:
a. Ease of financing;
b. The quality of the services performed
by the financial consultant or under-
writer;
c. The presence or absence of built-in checks
on pro forma cost and usage figures;
d. The importance of the political process in
determining usage rates and fees in response
to inadequate revenues.
The ease with which funds can be raised is highlighted
by the county's ability to float a second lien at an
estimated 50 basis points more yield than the original issue.
This is possible in spite of the failure of the project to
generate sufficient revenue to cover operating expenses,
and despite the failure of the Board of County Commissioners
to set the fees required by the bond indenture. Such lack of
flotation difficulty results from the issue's semi-general
obligation status.
The-financial advisor/underwriter performed a- service
of very limited value, involving conflict of interest and an
undisclosed profit. The advisor did not check critical
figures, did not examine the possibility of cheaper funding
through the state pollution-control bond program, and
-------
recommended a negotiated placement with itself as underwriter,
Before bidding, the underwriter had eliminated most of the
risk by getting commitments from institutional buyers,
using the county's own, unreworked, pro formas. This nego-
tiated placement included an undisclosed fee for services
rendered.
With no build-in checks on pro forma figures, costs
were very much understated. The invalid assumption that
Orlando would join the system proved critical in estimating
revenue. At present, no adequate cost accounting system
exists.
The political process proved critical in the county's
failure to meet its objectives. City-county friction
resulted in Orlando's unwillingness to participate in
the system. Moreover, the Board of County Commissioners
felt it politically unwise to set rates as high as the
bond resolution and county plans required.
-------
Sacramento County, California
Sacramento County contains the city of Sacramento,
the capital of California. In 1972, it had an estimated
population of 830,000. Sacramento County has employed a
"pay-as-you-go" approach to disposal and collection financing.
This approach has proved successful over the past seven
years and expansion continues to be financed by this method.
Moreover, the county is currently building a transfer station
that will be financed jointly with a federal government
unit—the McClellan Air Force Base.
Solid Waste System Background
For purposes of solid waste disposal, the county has
been divided into three parts: the city of Sacramento
(population 330,000), the non-city area north of the American
River (population 375,000), and the non-city area south of
the American River (population 125,000). Until January 1, 1973,
the solid waste from each of these areas was handled by
separate systems.
Sacramento County generated about 1.8 million tons of
solid waste in 1972, of which 51 percent was estimated to be
agricultural, 44 percent residential and commercial, and
5. percent industrial. It is estimated that the solid waste
pile will increase at about 2 percent per year over the
next decade.
Prior to 1973, Sacramento County provided collection
of residential refuse to most of the unincorporated area
lying north of the American River and to a few selected
areas south of the river. This service area includes
some 66,000 households.
Once-a-week collection is provided for two 30-gallon
containers.
The service area is presently divided into 56 routes.
Each route is ,serviced at least once a week by one truck
wjlth two collectors. Each truck has a 25-cubic-yard capacity.
and carries from seven to ten tons of refuse when fully
loaded. The county has 65 trucks and 124 collectors.
In 1970' (prior to the initiation of unlimited curbside
service), the county collected and disposed of 66,000 tons
of refuse. In 1971, 85,000 tons were collected and disposed
of; and in 1972, an estimated 100,000 tons of municipal
residential refuse was handled. County residents pay a $3.25
per month household charge for once-a-week collection.
33?'
-------
Sacramento County owns and operates a 655-acre sanitary
landfill which is expected to last until the end of the
century. The landfill operates at a capacity of 1,000 tons
per day.
In January 1973, Sacramento County began collection and
disposal service to approximately 17,000 more residential
accounts located south of the American River. Before 1973,
this area was serviced by a private contractor with a
weekly collection franchise. The collector would then dispose
of the refuse in his 400-acre landfill. Residential collection
from this area amounts to about 90,000 tons a year. This
waste, and the approximately 85,000 tons a year of commercial
waste (which will continue to be collected by the franchisee),
is now disposed of at the county landfill.
At the present time, six vendors have a permit to
provide commercial collection in the county. Most of this
waste is delivered to a transfer station near downtown
Sacramento. It is then taken to the Sacramento County
landfill after a limited reclamation of ferrous cans and
paper.
In addition to the county's activities, the City of
Sacramento provides weekly municipal refuse collection service
to its residents. The service area contains over 73,000
accounts and includes commercial collections. Tree and
grass trimmings are picked up separately by the City Street
Maintenance Department. Other refuse must be hauled by
the citizen or private commercial collectors to the county
landfill.
The city owns and operates a sanitary landfill disposal
site within the city limits which is not open to private
collectors or the public. The site does not have scales
for weighing material, but an estimated 50,000 to 60,000
tons of municipal refuse are disposed here annually (not
including tree and grass trimmings). The city expects
its present site to be exhausted before 1980. At that time,
it will use the county landfill for disposal purposes.
Recent Developments
Late in 1972, construction began on the county's transfer
station in the north area, to service seventeen collection
routes and about 60,000 people. It is estimated that the
transfer station will be completed and open by June or
July 1973. The.construction of this transfer station is a
joint venture with the McClellan Air Force Base, which had
previously disposed of its 50-75 tons per day at its own facility.
-------
The capital cost of construction for the transfer station
(including hauling vehicles) will be about $968,000.
McClellan will contribute $163,000. The county will finance
the remaining $805,000. Operating costs of $300,000 per vear
are estimated and will be covered by user charges, paid
at the facility by private and county collectors.
In addition, the county is studying the feasibility
of constructing another transfer station in the south area.
It is also considering several material recovery alternatives,
to supplement the ferrous can reclamation provided by the
city of Sacramento.
Financing
The county's solid waste operations began with the
completion of construction of its landfill in July, 1967.
The county entered the refuse collection business on April 8,
1968, when a private contractor failed to provide the service.
At this time a special Refuse Enterprise Fund was established
to include both collection and disposal activities. Disposal
activities had been previously financed through the general
county budget. Since 1968, the county's entire solid waste
activity has been treated as an autonomous financial unit.
Since the inception of its solid waste operations, the
county has used the pay-as-you-go method to finance capital
requirements. This method makes use of appropriations
from the County Service Fund (financed by property taxes)
to -supplement operating profits and depreciation reserves
from the refuse collection and disposal enterprise itself.
Operating income for the Enterprise is generated by
user fees for residential collection ($3.25 per month),
residential disposal ($1.00 per load), and commercial
disposal ($1.25 per ton). The total cost per ton of collection
and disposal, including depreciation of equipment and other
fixed assets, is passed on to users through service charges
on their monthly general tax bill. These unit fees are
reviewed from time to time to reflect labor increases,
inflation, and additional services provided, and will probably
be increased again in 1973.
i The county has rejected long-term debt as a financing
alternative chiefly because it places a high interest burden
on the user, and because of the difficulty of passing bond
issues in Californiaa A two-thirds majority of voters is
required to support a general obligation bond. Furthermore,
the capital outlay in any single year has never been so large
Sft
-------
that it could not be financed by a combination of user fees
and annual appropriations from the general fund. The
$618,000 cost for the county landfill was completely financed
through appropriations from the county general fund.
For the 1972-1973 fiscal year, an estimated $1,227,000
in capital expenditures was required. Of this amount,
$805,000 was the county's share of the north area transfer
station and trucks and equipment. (Service charge for this
facility will be $5.00 per ton for commercial collectors.)
An additional $395,000 was needed for sixteen refuse
collection vehicles required by the growth of the service
area north of the American River, and by the takeover of
collection responsibilities south of the river on January 1,
1973. Finally, $27,000 was required for miscellaneous fixed
assets. Of the $1,227,000 required, $257,000 was supplied
from previously accumulated operating profits. An additional
$247,000 was provided by previous equipment replacement
reserves, and the remaining $721,000 was provided by transfer
from the County Unincorporated Area Service Fund (property
taxes from areas which use the service) which, in essence,
is a general fund for services provided to unincorporated
areas adjacent to the county.
Observations
Sacramento's approach of user-charges to cover estimated
operating costs of collection and disposal seems to be
equitable and practical. It is interesting to note, however,
that six years after inception, 60 percent of 1973's
requirements are being provided by property taxes rather than
user-charges. Operating income surpluses will probably never
cover the entire capital requirements, and property tax
appropriations will continue to be required from time to
time. The county has evaluated the merits of bond financing
versus higher, short-term taxes through pay-as-you-go
financing and feels that the latter is preferable due to the
difficulty in getting bond financing as needed—the difficulty
being the community approval process.
The county's financing requirements over the next five
years will probably include amounts for a south area transfer
station, additional collection equipment, and materials
recovery processing equipment. These requirements will not
be major. After 1980, if the city of Sacramento elects to
use county collection and disposal facilities, the county
will purchase the city's equipment, and possibly an additional
transfer station in the city. However, the additional value
supplied by city residents should enable the county to
-------
lower its operating costs per ton, and additional revenues
will, of course, be provided by city residents.
A significant feature of Sacramento's financial
decision-making process is that access to capital is much
more important than cost of capital. The county would
rather raise taxes than pass the interest cost of bonds to
users. It has never examined whether pay-as-you-go with
tax increases is more or less costly than bond financing.
3*3
-------
San Diego County, California
San Diego County in Southwestern California has a
population of over 1.5 million. Of this number, 754,000
are served by the city of San Diego's solid waste system,
and 721,000 by the San Diego County system.
San Diego County has few present problems in solid
waste collection and disposal. Though its solid waste
system provides service for a large number of people,
landfill sites are readily available at low cost.
Solid Waste System Background
The county provides curbside residential pickup once a
week. Commercial collection is on an as-needed basis. All
collection is performed by 36 private firms which are licensed
annually by the county. The total daily tonnage is
approximately 2,500 tons. The private firms that engage
in hauling and disposal operate on a user-charge basis for
individual customers.
In the back country areas, the county has set up a bin
transfer system. The bins provide a central collection point
for the small segment of the population that has always
dumped its waste. Solid waste is brought to the bins by
citizens in east San Diego County. Private haulers maintain,
service and empty the bins under contract to the county.
This is the only part of the county system that is not
operated on a standard user-charge basis.
The county owns and operates all its own disposal
sites. At this writing, there are eleven sanitary landfills.
The waste collected by private haulers servicing residents,
commercial establishments, and bin transfer stations is
disposed of in county landfills.
The city of San Diego operates three landfills of its
own, but each is almost filled to capacity. It is possible
that the city will eventually elect to take part in the
county landfill system.
The county and the city appear committed to landfill
for the foreseeable future because of its low cost—about
$1.70 per ton for disposal—as well as the availability of
land.
-------
Recent Developments
Since San Diego County is committed to landfill as the
primary means of disposal, it is unlikely that large capital
expenditures will be required in the foreseeable future.
Recently, EPA granted a $3 million demonstration grant to
the county, to be matched by $1 million in county funds, for
construction of a 200-ton per day pyrolysis plant. County
officials applied for the grant because of a projected
energy shortage and they looked on solid waste as a source
of energy in the future.
Financing
All solid waste financing has come from general revenues.
Following is a breakdown of the 1972-73 capital cost budget
for solid waste management.
Automotive Equipment $194,000
Land Acquisition 430,000
Capital Improvements 59,000
Major Maintenance 7,000
Rents and Leases 6,000
Total $696,000
In 1972, the county had a bonded debt of $7.9 million, with
a little over $1 million due within one year. The legal debt
ceiling was $174 million, based on 5 percent of assessed
property valuation. Also in 1972, the county levied taxes
of approximately $325 million. It is clear from these
numbers that the debt capacity of San Diego County greatly
exceeds the debt utilized to date, and that solid waste
capital expenditures represent a small proportion of total
revenues. Finally, since the solid waste system is on a flat
rate user-charge basis, billed outside the normal tax collection
process, the solid waste operations are self-supporting.
Observations
San Diego County appears to have a smoothly functioning
and well-financed solid waste collection and disposal system.
The county could well afford a significantly greater invest-
ment in solid waste facilities, if that should ever prove
necessary. Given the desperate plight of so many other areas,
San Diego County is probably unique.
-------
Southeastern Oakland County Incinerator Authority
Michigan
In 1951, fourteen communities in Eastern Michigan's
Oakland County joined together to form and incorporate
an incinerator authority. The area served by the
Authority covers 80 square miles and contains a population
of 360,000. By 1995, this figure is expected to reach 500,000
The Southeastern Oakland County Incinerator Authority
is an example of an organizational form created to support
the construction and operation of a solid waste disposal
system that no one community alone could sustain. The
Authority's ability to finance capital equipment with
revenue bonds suggests tha't this type of financing works
very efficiently in this type of situation.
Solid Waste System Background
Community cooperation and joint planning for solid
waste services was a fact of life in Southeastern Oakland
County as early as 1945. Administrators from municipalities
in this area were instrumental in securing the adoption of
an Act which allowed two or more cities, villages or
townships to incorporate an authority for the purpose of
collection and/or disposal of garbage and refuse. The
Act also gave the Authority power to issue self-liquidating
revenue bonds either for acquiring or enlarging solid
waste facilities.1
In addition, the Act specified that the Authority and
a participating municipality could contract for the
collection and/or disposal of trash for a period up to
thirty years. In this regard, the charges specified in
such a contract can be increased by the Authority, if
necessary, in order to provide funds to meet its
obligations. Further, the Act specifically stated that
"the legislative body of each city, village or township
which is part of such authority is authorized to raise by
tax or pay from its general funds any monies required to be
paid by the articles of incorporation or by the terms of
any contract between it and the authority."2 The thirty-
1
Act 179, Michigan Public Acts of 1947,1123.308 Sec. 8
Ibid.
-------
year contract privilege and the Act's revenue provisions
are features not often available to municipalities that
wish to cooperate in providing solid waste services.
Following passage of the Act, the fourteen communities
spent several years in negotiation and planning. In 1951,
the articles of incorporation were finally drafted and
adopted for the Southeastern Oakland County Incinerator
Authority.
The governing body of the Authority is a board of
trustees composed of a representative and an alternate
from each municipality. Each is appointed for one year.
Each representative on the board has one vote for every
3,000 tons of garbage and rubbish delivered from his or her
municipality during the preceding year.
Under the contract currently in force between the
Authority and the fourteen municipalities, the amount paid
by each community is based on the weight of garbage and trash
at the time of delivery to the Authority. Of course, the
rate has increased rather steadily as new equipment has been
added and operating costs rise. The original rate of $4.25
per1 ton will i.ave increased to $7.06 per ton in 1973. These
rates are designed to produce an excess of revenue over
expenses, and have consistently done so.
In addition to the charges based on the weight of
refuse delivered to the Authority, each community is
required to pay a "Ready-to-Serve-Charge". The amount paid
by each city equals $100 per ton for the greatest single
average day that city has had in the last five years.
Although the revenue from this source amounts to only
6 percent of the Authority's total income, it is approximately
25 percent of the debt service requirements.
The "Ready-to-Serve-Charge" was included in the
Authority's rate structure in an attempt to secure greater
equity among the member communities. The plan was supposed
to provide some funds for making services available to
those communities that are growing. In practice, however,
the charge does not seem to provide significant revenues.
Revenue figures from a recent income statement show that if
the "Ready-to-serve-Charge" had been allocated on a refuse-
per-ton-delivered basis during the same time period, the
additional charge would have varied between $0.43 and
$0.54 per ton with an average of $0.44. The range is so
small that it is almost meaningless.
-------
Following its in orporation, the Authority acquired a
30 acre tract of land and constructed a 450 ton per day
incinerator which went into service in 1954. This original
plant contained three batch-fed furnaces. Within six years
their capacity became insufficient. The amount of refuse
delivered daily to the Authority for disposal increased from
an average of 287 tons per day in 1955 to 575 tons per day
in 1965. To meet growing needs, the capacity was increased
to 600 tons in 1963. The remodeling included the replace-
ment of the three batch-fed furnaces with two continuous-
feed, revolving-grate furnaces with water baffle air
pollution control and an additional stack.
The Authority also owns 240 acres of a partially-wooded
abandoned gravel pit for use as a landfill site. The land
was purchased by the Authority with the understanding that
when the landfill was completed it would be returned to
the township for development as a public park. The
Authority's landfill areas, coupled with the incinerator,
should be capable of meeting the needs of the Authority .
through 1995.
Finally, in 1970, the Authority decided that a transfer
station would be necessary in order to process and
distribute refuse efficiently between the incinerator and
the landfill. After more than two years of hearings
before city councils, citizens' committees and planning
commissions, the Authority purchased a ten-acre centrally-
located site. The station utilizes a non-compaction
transfer system in a two-level, totally enclosed structure.
When operated on an eight hour per day basis, the station
can process approximately 600 tons of refuse.
At present, the Authority is receiving an average of
810 tons of refuse per day. This volume is projected to
reach more than 1,300 tons per day by 1995.
Recent Developments
The immediate problem confronting the Authority is
that the incinerator is not meeting either Michigan or
federal air pollution requirements. The Authority determined
that the installation of Venturi scrubbers would be required
to meet pollution control requirements. This system was
recommended and engineered- by Dow Engineering Corporation.
The cost for the system will be $1.4 million, and construction
was scheduled to begin in February 1973.
-------
Financing
An ordinance of the Authority sets a prerequisite for
the issuance of revenue bonds. Average net revenue
(total revenue less operating expenses) for the preceding
two operating years must be at least 150 percent of the
maximum amount of principal and interest maturing in
any operating year, on all bonds of equal standing,
including any additional bonds proposed to be issued.
The funds remaining after meeting yearly principal and
interest payments are divided between a general reserve
fund and an ongoing capital improvement program. For
example, the fiscal 1973 budget projects that more than
$250,000 will be available for division between the reserve
fund and the capital improvement program.
Five separate revenue bonds have been issued within
the past nine years:
. 1954 - $4.25 million for incinerator plant
. 1962 - $2.35 million for capacity increase to
600 tons per day
. 1969 - $455,000 for ash conveyor and for refunding
original issue
. 1970 - $1.5 million for transfer station
. 1973 - $1.4 million for pollution control equipment.
The Authority has established a good record
of bond financing and repayment. For this reason the
financial advisor handling the current bond issue expects
an A or A-l rating and a trouble-free underwriting.
All municipal bonds in Michigan must be cleared by
the State Municipal Finance Commission. This three-member
board has the responsibility of providing both a technical
and financial review of any proposed project.
All municipal bonds in Michigan must also be offered
for competitive bidding. This does not seem to create a
problem, even for smaller issues, since there is a large
number of regional investment banking houses in nearby Detroit.
-------
The following is a schedule of events for the Authority's
Air Pollution Control Project:2
October 18, 1972 - Publish intent to issue bonds
October 31, 1972 - Authority places Legal Aid by this
date for construction bids.
November 3, 1972 - Dow delivers bidding documents to the
Authority.
November 6, 1972 - Bidding documents delivered to Madison
Heights Building Commission and bidding
documents available for contractor
pickup.
November 21,1972 - Estimated approval of State Municipal
Finance Commission
December 1, 1972 - Madison Heights Building Department
approval received.
December 20,1972 - Contractors Bids received.
January 10, 1973 - Award Construction Contracts, subject
to the Sale of Bonds.
January 23, 1973 - Sale of $1.4 Million Incinerator Series
IV Revenue Bonds.
February 5, 1973 - Start Construction.
2. Southeastern Oakland County Incinerator Authority,
"Quarterly Report - October, 1972".
-------
Observations
The Southeastern Oakland County Incinerator Authority
was established in order to provide the services of a
capital intensive solid waste disposal system to a group of
relatively small communities. A primary reason for construc-
ting an incinerator was an anticipated shortage of landfill
sites.
Raising reasonable amounts of capital has clearly
not been a serious problem for the Authority. The use of
revenue bonds for capital formation is dictated principally
by the organizational form. Since an authority has no
general revenue base, it cannot issue general obligation
bonds. For large amounts of long-term funds, it must, there-
fore, use a form of borrowing that is suited to its struc-
ture. The revenue bond is the ideal mechanism.
The Authority has taken advantage of Michigan laws that
permit long-term contracts, and allow each municipality to
use general revenues to meet its share of the Authority's
obligations. It can issue revenue bonds that are more like
general obligation bonds than true revenue bonds, where
demand conditions alone determine income. Its revenue bonds
are, therefore, well accepted in the financial markets.
During our interviews, the financial advisor told us that
the nature of the Authority had no effect whatsoever on the
bond rating or sale price.
In summary, the financing of capital expenditures has
been a fairly routine procedure for the Authority. Funds
for expansion and improvements have been available as needed.
-------
Ventura County, California
Ventura County, on the central coast of Southern
California, has an estimated 1973 population of 430,000.
Population forecasts of the California Department of Finance
predict a threefold increase to 1.24 million in the next
30 years. This would make Ventura the fastest-growing county
in the state. In its decision to adopt a regional approach
as the' most economic alternative in solid waste management
Ventura County is typical of many metropolitan areas with
populations in the 350,000 to 500,000 range.
Solid Waste System Background
Solid waste management in Ventura County has passed
through several stages during the last decade. The trend
has been toward centralization of responsibility'in both
the planning and operation of disposal facilities.
Before 1970, the county's solid waste disposal require-
ments were met through the utilization of private landfills,
landfills in adjacent counties, and open dumps. In an
attempt at combined planning in the county, the Department
of Public Works prepared a "General Plan of Refuse Disposal
Sites" in December, 1967. The Department attempted to
provide a development plan for landfill sites and to meet
the growing needs for solid waste disposal facilities.
The County Board of Supervisors did not approve the document
and, consequently, none of its recommendations were formally
implemented.
With the increasing need for new landfills to accommodate
the growing refuse disposal requirements of an expanding
population, the County Board of Supervisors realized that
a countywide approach was mandatory. They formed the Ventura
Regional County Sanitation District (VRCSD) on June 28, 1970.
The sanitation district's boundaries conformed to county
boundaries. A major management goal was the transfer of
all county solid waste planning functions and operations to
the regional district.
Early in 1971, the County Board of Supervisors formally
adopted the concept of public ownership of solid waste
disposal facilities. Subsequently, the Board approved the
transfer of existing county disposal operations to the
district and adopted an ordinance prohibiting operation of
a private landfill in the unincorporated area. The actual
transfer of facilities took place July 1, 1972.
3 6 A,
-------
The District Doard of Directors is composed of the
mayors of the nine cities within Ventura County, the chair-
men of ten special sewage collection districts, and the
chairman of the County Board of Supervisors (representing
the unincorporated areas of the county). The county's
equipment and personnel were transferred to ':he regional
district.
Currently the VRCSD operates three sanitary landfills
with a total capacity of 750 tons daily and two non-commercial
transfer stations to service residents distant from the
landfills. The major disposal site in the county, however,
is the Ventura Coastal Landfill, a privately owned and
operated facility with a capacity of 600-800 tons per day.
Finally, about 150 tons per day are exported to Los Angeles
County landfills. In total, 1,200-1,400 tons per day are
handled by all facilities. Sixty-five percent of collected
refuse is from residential sources,
All of VRCSD's refuse disposal sites are leased from
private owners. Most of the existing disposal site equip-
ment was taken over from the county by VRCSD on July 1, 1972.
New equipment has been acquired by the district on lease-
purchase arrangements. User fees for disposal are charged
by two of the liindfills. Other facilities do not charge
the public directly. Fees range from $1.50 to $2.00
per ton, but do not cover operating expenses. The deficit
in operations and capital expenses has been covered by the
county's general fund.
The Regional District is not authorized to enter the
collection business. Collection of household and commercial
waste is handled by a variety of methods—municipal systems,
competitive commercial firms (individual homeowner contract),
franchise operations, and restricted contractors. About
70 percent of all collection is private. Monthly residential
rates range from $1.75 to $3.00, and are generally higher
than in other nearby counties. Combined refuse collection
is carried on in every city, with collection frequencies of
once or twice per week.
The volume cf municipal waste generated in the district
has not warranted the use of processing systems such as
pyrolysis. Landfill costs are considerably lower. Recycling
is practiced on a small scale by local community groups.
The entire range of activities of VRCSD is summaried in
its "Regional Solid Waste Management Plan," prepared in
May, 1972.
-------
Recent Developments
VRCSD must locate an economical, centrally located
landfill as an alternative to the major one in operation,
the Venture Coastal Site. A prohibition on private landfills
adopted by the County Board of Supervisors will terminate
operations at the privately owned Ventura site within the
next few years. Even if this prohibition had not been
passed, VRCSD would still face the task, for this site
currently handles nearly two-thirds of the district's
wastes, and has only a two-to-five year additional capacity.
In addition, the district needs a site for the disposal
of toxic and hazardous wastes.
VRCSD studied several possible sites and finally located
a desirable one at Lake Canyon in Ventura. The city agreed
to acquire the land and provide it for VRCSD (under a
Joint Powers Agreement), with VRCSD paying the city a user
charge based on yards filled. During and following landfill
operation, ownership would remain with the city of Ventura,
and the site would eventually be converted into a regional
park.
VRCSD agreed to absorb the estimated $500,000 for site
improvements: extension of an existing access road,
installation of scale facilities and of water and
power facilities, construction of drainage systems, addition
of fencing, and acquisition of necessary environmental
monitoring equipment.
An estimated $400,000 to $500,000 will also be needed
for equipment. Finally, about $150,000-$200,000 is
required to assist VRCSD in planning and initiating
preparation and construction efforts.
Financing
VRCSD felt that user charges and the existing general
tax would cover operating costs of the new landfill, but
that "front mone'y" was required to finance site development
and acquisition of equipment. Eventually, the district
hopes to finance disposal entirely with user fees. With a
planned $80,000 coming from the district, VRCSD applied to
the EPA for a solid waste demonstration grant of $240,000
for a model sanitary landfill. Only $40,000 for planning
and management was received from the EPA. So the district
is looking for alternative financing possibilities to pay
for construction.
-------
District officials believe that traditional sources
of property taxes or bonding are not feasible. California
Senate Bill No. 90 puts a freeze on the tax rates of special
districts, the easiest source of revenue for VRCSD.
General obligation bonds require a two-thirds majority in
a public election. District management feels that the
likelihood of approval of solid waste general obligation
or revenue bonds by Ventura County voters is slight.
District managers believe their best chance for
financing rests with revenue-sharing, and they are now
attempting to negotiate funds. The District is also
attempting to increase user charges for the existing and
proposed landfills. However, a sizable increase may
lead people to resort to illegal dumping (in part because
most of the county's disposal facilities did not charge
the public directly for many years).
Observations
In Ventura County a regional solid waste management
district has been established with the authority to
implement an area-wide disposal plan. Federal and local funds
have been used to make planning studies and to establish
a centrally-located Class I landfill site. The site has
been tentatively secured, and district officials believe
that zoning will be approved. However, funds are lacking
for site development and equipment acquisition.
Traditional sources such as bonds and local taxes do
not appear feasible to district management. A federal
construction grant has been denied, and government loans
are unavailable. Revenue-sharing appears to be the only
hope, but district officials are unsure whether sufficient
funds can be generated from this source, and when they might
be available. Probably, a combination of increased user charges,
increased district ad valorem taxes, and revenue-sharing
will provide the fund requirements of the district over
the next five years.
-------
Weber County, Utah
Weber County, located in the Salt Lake Valley, has
a population of 120,000.
Weber County provides an example of a financing
strategy for an already efficient and economical incinerator
facility. More than half of the required capital is being
provided by the Defense Supply Agency's Defense Depot at
Ogden, and the remainder, by revenue sharing.
Solid Waste System Background
In the mid-1960's Weber County considered several
possible landfill sites to dispose of its rapidly expanding
solid wastes. Many were unusable because of the high water
table from the Great Salt Lake. Others were too remote.
The county also considered composting but found this
unfeasible. Next, two systems of incineration were
investigated. The first, a large-scale incinerator, with a
500 ton per day capacity, was estimated to cost $1.5 million.
The second, a smaller facility with a 300 ton capacity, was
estimated to cost about $500,000. Weber County chose
the latter. '
Clear Air Solid Waste Reduction, Inc. completed the
incinerator in December, 1966, at a cost of $487,000—all
of which was financed by property taxes from the 1966 and
1967 county general fund. (No bonding was required.)
The incinerator receives municipal and private collections
of residential, commercial, and industrial solid wastes for
the entire lower valley area of the county. The incinerator
site is only 1.4 miles from the county's population center,
and the average haul distance is approximately four miles.
Adjacent to the plant is a 100-acre residue and fly ash
disposal site, which has an estimated life expectancy, at
current usage rates, of approximately 200 years.
The incinerator's two 150-ton furnaces are continually
charged by conveyors fed by front-end loaders from a surface
storage area. It averages 91 percent reduction in volume,
and 61 percent in weight. It also reduces combustibles
98 percent. Air pollution levels are very low.
The cost of operating the incinerator has ranged from
$2.45 per ton in 1969 to $2.95 per ton in 1968 on a volume
of 45,000 to 70,000 tons per year (250 days at 200-250
tons per day). Amortization costs have been $.60 per ton
-------
and interest opportunity costs another $.20 per ton (although
no interest is paid because it was not debt-financed). The
total cost for a representative year between 1969 and 1972
was about $3.50 per ton. This cost is the lowest of seven
incinerators surveyed by the Bureau of Solid Waste
Management in 1970.
The county is not involved in collection. Each
community, through its own municipal or private pick-up
service, delivers directly to the incinerator.
Recent Developments
In 1971, with the two 300 ton furnaces running near
capacity, the county decided to build a third furnace for
the incinerator complex. This would add another 150 tons per
day to capacity. The contract was put up for bidding in
August, 1972. In September 1972, Clear Air, Inc., a successor
to the original incinerator builder, submitted the lowest
bid, $624,000. The third furnace is expected to be in
operation by Fall, 1973.
The expansion will enable Weber County to process an
estimated 25 tons per day of waste generated by the
Defense Depot in Ogden, its principal city. These wastes
are currently being burned in an open dump at the Depot,
in violation of state air pollution laws. The incinerator
will be in full compliance with air pollution laws upon
completion of the 150 ton expansion unit.
Financing
All operating expenses for the incinerator have been
covered by the county's general fund, and charged back to
the communities served, on a population basis ($.50 per
household per month). Communities have combined this
with collection and landfill charges and have passed them on
to residents usually as a refuse charge on their general
tax bill.
The Defense Depot has agreed to pay $365,000 of the
$624,000 cost of the incinerator expansion. The remaining
$259,000 of the cost will be financed from Weber County's
revenue-sharing allocation. (Preliminary indications are
that the county will receive $782,000 in revenue-sharing
funds, and the County Commission Chairman has earmarked
$259,000 for the incinerator project.) No property tax
or general fund money is expected to be used for construction.
Traditionally, Weber County has financed new projects through
current funds, rather than debt.
3*7
-------
Observations
The Weber County incinerator appears to be one of the
most economical and efficient solid waste facilities in
the country. The facility is, and will continue to be,
in complete compliance with air pollution standards.
Capital costs for both the original 300-ton incinerator and
the 150-ton expansion are very low.
The county's use of property taxes to finance the
original installation is unique among methods for funding
incinerators. By providing the Defense Depot in Ogden with
economies of disposal, the county was able to raise
$365,000 of the $624,000 required for the 150-ton expansion.
The use of revenue-sharing funds for the remaining $259,000
appears the easiest way for Weber County to complete the
financing.
-------
Colorado
The Rocky Mountain State of Colorado has a population
of approximately 2.21 million widely dispersed among several
large cities and hundreds of smaller towns. By 1980, the
population is expected to increase by about 25 percent.
Demographers predict a population of 3.75 million by the
year 2000.
In the area of solid waste management, Colorado
does not pursue a program of vigorous involvement in local
affairs. Rather than extending financial aid, the state
provides training and planning on a regional basis to
counties, cities, and towns throughout the state. Although
there are twelve planning regions, the basic unit in solid
waste management is the county.
Solid Waste System Background
About 61 percent of Colorado's 298 landfill sites are
open dumps rather than sanitary facilities. The remaining
sites reportedly need upgrading. There are no municipal
incinerators in use. Little financing of solid waste
disposal equipment has occurred in the state. One city,
Alamosa, with a population of 8,000, recently obtained a
15-ton per hour grinder to process solid waste prior to
landfilling. No cost data on this has been released.
Denver recently established a transfer station to service
a landfill located 25 miles outside the city but soon closed
it because private sites nearby offered a more economical
alternative.
The principal state agency concerned with solid waste
management is the Colorado Department of Health which
provides technical advice and services to other governmental
entities, private organizations and individuals. Its rules
and regulations are set by the State Board of Health.
Public land is an important source for potential
landfills and approximately 70 percent of the sites in the
state lie on land owned by some public agency. About
36 percent of the land area of Colorado is owned by the
Federal Government and is under the control of the Forest
Service and the Bureau of Land Management. About 85 percent
of the sites are operated by public agencies.
A 1968 solid waste survey conducted by the State Health
Department, in cooperation with the Public Health Service,
-------
found that wastes collected amount to a daily average of
5.3 pounds per capita. This amount is expected to increase
by 1990 to 12.3 pounds.
F6r the 1968 survey, data was compiled on storage,
collection, and transportation practices in local commun-
ities. Weekly collection is provided for most household
refuse. Survey findings indicate the annual cost per
capita for household collection ranged from $3.76 to
$9.55, with an average of $7.30. In communities of more than
5,000, 54 percent of the population is served by publicly-
operated collection systems; the rest, by private collectors.
Total costs per capita per year for solid waste disposal sites
and facilities was $.60, compared with a national figure of
$1.70.
In accordance with state statutes, Colorado cities and
towns have authority to regulate trash collection. Dis-
posal districts, for collection and disposal of solid wastes,
may be formed in counties which maintain a county or dis-
trict health department. None have yet been formed,
however.
County planning in the solid waste field is directed
largely toward disposal matter, as only one Denver City/
County has concerned itself specifically with collection.
Collection has been handled by towns, cities, private haulers,
and individuals. The Solid Waste Disposal Act of 1967 author-
izes the boards of county commissioners to issue licenses to
public and private operators of disposal sites and facilities.
In other words it is expected almost to double the
increase projected for population. Using a generation rate
of only 6.5 pounds per capita per day, it was estimated
that an annual acreage in disposal sites would amount to
approximately 1,500 acres in 1990, if the waste were dis-
posed of in five-foot lifts.
Recent Developments
There are two Regional Councils of Governments in
Colorado, one in Denver and one in Colorado Springs. The
Denver Regional Council of Governments is a voluntary
association of elected- officials from local governments and
political subdivisions within the five-county Denver metro-
politan region.
-------
In March 1968 the Denver Regional Council formed the
Solid Waste Technical Advisory Committee to conduct
solid waste management studies and investigations for
the Denver Metropolitan Region. In August 1972, a compre-
hensive solid waste management plan for the region was
prepared under a project entitled "REUSE". Two thirds of
the $300,000 funding for this project was contributed by a
Federal Grant from the Housing and Urban Development
Agency.
The Pikes Peak Council of Governments represents the
city of Colorado Springs and surrounding political
entities. It functions in a manner similar to the Denver
Regional Council but has not yet prepared plans for solid
waste.
On May 22, 1972 the Governor of Colorado signed into
law the Service Authority Act (SAA) which authorizes the
establishment of service authorities in a variety of areas:
solid waste, water control, public surface transportation,
flood control, cultural facilities.
Formation of a service authority may be initiated
in two ways:
1. a petition signed by qualified electors
within the jurisdiction of the proposed
authority, numbering not less than 5
percent of the total number of votes
cast for all gubernatorial candidates
in the preceding election; or
2. a resolution adopted by the majority of
the governing bodies of the municipali-
ties and counties in the area.
A service authority is governed by a board of direc-
tors, whose size is determined by the population of the
area. Members of the board are elected at the November
general election, and serve for four-year overlapping
terms. Whatever corporate and governmental powers are
necessary for the effective delivery of services are granted
to the board.
-------
Financing
Colorado has not used general obligation bonds to
finance any of its needs since 1951. Since 1936, revenue
bonds, or warrants, have been issued from time to time for
highways, state colleges and universities, and state homes
for the aged. These are paid for by user fees, such as
tolls and dormitory room rentals. In 1969, cities and
towns had outstanding bonds of special improvement districts,
general obligation, and revenue bonds of about $596
million.
Solid waste management systems in the state are
financed through general funds, collection fees, and
disposal site fees. The boards of county commissioners are
authorized to levy a tax, not to exceed one-half mill, for
financing district expenses including solid waste manage-
ment. County commissioners can also appropriate money out
of the general fund for maintaining landfills.
A wide range of fiscal resources open to the service
authorities includes ad valorem taxes, service charges and
fees, and any intergovernmental grants that become avail-
able. The authorities will also receive a portion of
any state-collected, locally-shared taxes that may be
established in the future. Provisions for the use of
special taxing districts are designed to assure that
assessments and charges for services are paid only by those
residents of a service authority to whome the services are
made available.
The boards are also authorized to issue revenue and
general obligation bonds for the acquisition, construction,
installation, and completion of improvements or facilities.
Any indebtedness of this type requires approval of the
voters.
-------
Idaho
The far western state of Idaho has a population
of 713,OOO1.
Idaho has no comprehensive, statewide solid waste
management program, although plans are in the formative
stage. It is highly unlikely that state funds will be
available to local or regional governments for implementation
of a solid waste management program. The financing burden
will remain with the individual communities.
Solid Waste System Background
The entire range of collection methods is represented
in Idaho. Only 40 to 50 percent of the population is
served by organized collection services. According to a
1968 survey, Idaho had 271 refuse disposal sites, of which
only seven could be termed "sanitary landfills." The
average cost per person per year for refuse disposal was
approximately $.50.
In 1970, the Idaho Department of Health prepared a
status report and a state plan, aimed at correcting
inadequacies in the present system. Two bills were passed
by the Idaho State Legislature in that year: one which
gives the State Board of Health power to enforce statewide
standards; and another which permits counties to become
financially and practically involved in solid waste
management.
Recent Developments
Since the 1968 survey, several disposal sites have
been closed. It is estimated that no more than 211 sites
are currently used. The Environmental Protection and
Health Act, passed in 1971, consolidated solid waste activities
a> the state level under the Environmental Protection Division
(EPD) of the Department of Environmental Protection and
Health.
According to a state official, the possibility of
establishing a system of material recovery is weakened by
the structure .of the market and the distribution of the
population. However, the state is supporting research on
the feasibility of recycling. At the same time, five
U.S. Census, 1970.
-------
northern counties are evaluating alternative approaches to
solid waste management under a short-range planning grant
from the EPA.
The EPD is currently revising regulations and standards
for solid waste management. New regulations will result in
the closing of all substandard sites (i.e., those with
inadequate air and watter pollution controls). To achieve
its objective, the EPD plans to use a permit system, and
to provide technical assistance to local communities.^
Financing will remain at the local level.
Financing
As of June 30, 1970, the state's bonded debt was
$1,956,000, of which $456,000 was in general obligation bonds,
(State Building Bonds). The assessed value of total
property was $996,349,000 in 1970. During this same year,
the state collected $131,408,640 in taxes. The bulk of this
is derived from income taxes ($56.2 million), and a 3 percent
sales tax ($41.6 million).
Until January 1, 1973, the state's solid waste program
was funded by a planning grant from the U.S. Bureau of
Solid Waste Management, on a 50-50 matching basis. A
continuation grant, to end June 1974, has been approved by
the Bureau, but no one knows how it will be affected by
the recent budget cuts in federal solid waste programs.
No state funds will be available for the capital financing
of solid waste processing and disposal.2 Counties now have
authority for solid waste management, and also have the
power to raise a two mill tax on the assessed value of land,
to finance solid waste management.3 Since this financing
mechanism promotes taxing inequities, the state supports
the introduction of user-fees at the local level, to meet
communities' capital and operating expenses.
Some cities with special problems will be allowed to
operate substandard landfills.
2
A bill which proposes a statewide junk-auto program is
currently in committee for study. A "disposal fee" for
each car would give the state the means to run the program.
It is estimated that more than half of the counties
already levy this tax.
-------
Observations
The rural nature of Idaho has fostered the development
of a number of uncoordinated systems. As a result, the
costs of upgrading local processing and disposal systems to
meet state standards will be high. Without a state funding
program, rural communities will be unable to meet present
standards. On the other hand, increasing costs may force
communities to accept a regional approach to solid waste
management. This would give officials more flexibility
in arranging financing.
-------
Vermont
Vermont is comprised of fourteen counties, with a
total population of 44,732 distributed over 9,609 square
miles.
Vermont has formulated a distinctive approach to solid
waste management in that -a State Act has made recycling a .
positive goal in the management of solid wastes.1
Solid Waste-System Background
An estimated 56 percent of Vermont's population is
presently served by organized refuse collection systems.
All types of collection service, both municipal and private,
are represented in Vermont. Current charges for collection
range from $20.00 to $40.00 per ton.
Of the 116 sites currently used for disposal, only
a dozen meet sanitary landfill standards, and only
26 percent of the population is now served by these
sanitary landfills. This low figure is a result of the
dispersed, low density nature of the state's population—the
single most important characteristic in determining solid
waste management. In 1972, 313,000 tons of Vermont's solid
waste was handled in landfills. Today each of the 246
cities and towns in Vermont has responsibility for its
own solid waste management.
Recent Developments
The purpose of Vermont's solid waste management and
resource recovery plan is to minimize the burden on land
through effective resource recovery and the most efficient
use of present landfills. It would initiate material
recovery through mandatory domestic, commercial, and
industrial source separation, and simple processing in
regional treatment facilities. It would also consolidate
the existing disposal sites into regional sanitary land-
fills, and establish regional transfer staitons, so that
convenient disposal sites would be available to all citizens
Act No. 252 of the Acts of 1971.
2
Each disposal site must be approved by the Environmental
Protection Division of the Agency of Environmental
Conservation—AEC T
-------
in the state.
In February 1973, a bill was introduced by
the Committee on Natural Resources to the State Senate
which would authorize implementation of the Solid Waste
Management and Resource Recovery Plan.l If the bill
is accepted, the state will finance all capital and operating
costs of the system, excluding collection. Although
operating control and maintenance will remain at the local
level, the state will assume all capital risks for develop-
ment of the system. A solid waste management tax will
provide the money needed to finance transfer, material
recovery, and disposal operations. The individual citizen
will no longer be directly involved through user-charges or
yearly fee in the financing of solid waste disposal. Total
net expense, that is, total expenditures minus recovery
revenues, over the next ten years should reach approximately
$20 million.
Financing
As of June 30, 1971, Vermont's bonded indebtedness
totaled $203 million. The rating of Vermont's general
obligation is Aaa. The total assessed value of property
in 1971 was $1.56 billion. Revenues are generated by the
state sales tax, which is 3 percent of retail sales, and
corporate and personal income taxes. Total revenue during
fiscal 1971 was $274,020,592, including a federal grant of
more than $82 million.
Vermont uses several financing mechanisms: user charges,
yearly disposal fees, and property taxes. If the state
maintains its environmentally-aware position, the average
price paid by the private individual for disposal of his
refuse will more than double by 1975, from $2.45 to
$6.00 per person per year.
In 1969, the General Assembly of the State of Vermont
created the Municipal Bond Bank as a new financing
mechanism.2 In December 1970, the bank issued $46 million
in 1970 Series A Bonds, rated Aa. These bonds are obligations
1
The plan was prepared by Resource Planning Associates, Inc.,
management and engineering consultants, Cambridge,-Massachusetts.
2
According to its charter, the Bank would "lend money to
counties, municipalities, or public bodies by direct purchase
from such governmental units of their bonds, notes, or
evidences of debt payable from ad valorem taxation."
-------
of the Bond Bank rather than of the State of Vermont.
The proposal recommended by the Committee on Natural
Resources includes a solid waste management tax of $3.00
per $1,000, or 3 mills, on all products sold at the retail
level. This tax would generate more than $2 million per
year—enough to implement the plan and to defray additional
collection costs at the local level.
This bill will not recommend a specific financing method;
however, the Committee on Natural Resources is currently
considering several financing alternatives. One involves
raising the initial capital from the Municipal Bond Bank
and repaying these revenue bonds with a 3 or 4 mill solid
waste management tax. Another financing method under consideration
is to raise the present 4 mill tax on beverage containers to
8 mills. The possible revenue generated by this tax is
estimated at $1.6 million per year. At the present time,
no specific financing mechanism has been recommended by the
Committee on Natural Resources. The committee believes that
Vermont's House of Representatives will have to make the
final decision on financing.
In 1971, a bill with a dual purpose—reducing Vermont's
solid waste pile and generating revenue for solid waste
programs—was introduced in the Vermont Legislature.
Essentially, the bill prohibited the sale of beer and non-
alcoholic beverages in non-returnable containers. Amend-
ments providing for a tax, but no ban, on all non-returnable
containers were passed. The final bill, enacted in 1972,
specified a 4 mill tax, to be replaced by a deposit charge
of 5 cents on returnable containers, and a ban on non-return-
able containers effective July 1, 1973. The revenue collected
from the beverage container tax has been estimated at
$3.2 million per annum, but may be as low as $800,000. The
bill states that the first $1 million will be distributed
to committees for the operation of "approved" landfills.
Funds beyond the first $1 million will" be allocated to the
Agency for Environmental Conservation, the AEC, for use in
establishing recycling centers.^
Distribution of the tax monies to local communities
started early in 1973.
-------
Observations
Vermont's approach to solid waste management is
unique in several respects. First, the state rejects .
the proposition that resource recovery is an alternative
reserved for densely populated areas. Then, too,
reliance on public participation is considered an important
factor in the plan's success. Finally, to facilitate
adequate funding from the outset of the program, the state
has established a special agency, the Municipal Bond Bank,
and has shown itself amenable to millages and other forms
of taxation. The method of financing is less important
than the concept itself.
-------
Washington
The State of Washington has a population of 3.4 million,
and demographers estimate an increase to 5 million by 1985.
Two factors make Washington's case significant in the area
of solid waste management: (1) Three of its largest cities/
Seattle,1 Spokane, and Tacoma, operate solid waste
utilities; (2) For the first time in its history, state
funds will be available for solid waste facilities.
Solid Waste System Background
Washington's Department of Ecology estimates that the
state's total solid waste is more than 30 million tons per
year. Agricultural wastes represent more than 50 percent of
the total waste. The residential waste stream alone is
estimated at 3.4 million tons per year, or 5.5 pounds per
person per day.
According to a 1966-67 survey, 74 percent of household
wastes, 79 percent of commercial wastes, and 56 percent of
industrial wastes are collected by organized services, both
municipal and private. Private collectors account for more
than 70 percent of this organized collection. The Washington
Utilities and Transportation Commission regulates collection
in the rural parts of the state. However, cities and towns
do not need certification by this commission. In 1967,
97 percent of the 339 land disposal sites in operation were
open dumps. The average community budgeted funds for
disposal at $1.30 per person per year but the figures
ranged from $3.22 to $0.47.
Recent Developments
Solid waste management in Washington, -at the state level,
started in 1967 with the development of laws regulating
solid waste activities. In 1969, the state legislature,
with the assistance of a seven-member Solid Waste Advisory
Committee, adopted the Solid Waste Management Act. The Act
assigned "primary responsibility for adequate solid waste
handling to local governments, referring to the State, however,
those functions necessary to assure effective programs
throughout the State". The legislature appropriated $669,000
to assist local governments in the development of solid waste
management plans during the next twenty years.
•'•Discussed in a separate case.
3/0
-------
By June 1973, 37 counties will have completed their
plans, and the remaining two are in the process of preparing
theirs. Eighteen counties are already in various stages
of implementation. Current'efforts are aimed at the
elimination of open dumps and upgrading of disposal sites.
Most counties are planning for centrally located sanitary
landfills and transfer stations, and/or drop-off boxes.
In November 1972, the minimum functional standards for
solid waste handling became effective. Enforcement of
these standards is the responsibility of the jurisdictional
health department.
The Department of Ecology sponsors training courses
and seminars on a wide variety of subjects, such as rural
transfer systems, leachate, recycling, grinders and
shredders, and hazardous waste. Since the inception of
this program in 1971, under a full grant from the EPA,
it is estimated that some 4,000 persons have participated in
free training programs. The Department of Ecology also
provides audio-visual material to interested groups.
The Department of Ecology recently hired a consultant
to study the feasibility of rail transfer of all of
western Washington's wastes to an existing strip mine
operation. In the study, reclamation, energy recovery, and
disposal by sanitary landfill methods will be evaluated.
'i
Financing
As of July 1, 1971, the state's bonded debt was
$581,958,000, of which more than $445 million was limited
obligations (rating A) and the remaining portion, general
obligations (rating AA). The state tax levy is fixed by
law at 2 mills. Equalized value of all property in the
state approximates $18.2 billion.
Most state revenue comes from a 5 percent sales tax,
(4.5 percent to be used by the state and 0.5 percent by
local governments). No income tax is levied.
It is estimated that $85 million1 is needed to provide
adequate disposal of residential and commercial solid wastes.
In November 1972, "Referendum 26" of Washington Futures Program
made available $225 million for the construction of disposal
facilities for both liquid and solid waste. This referendum
was one of a group of six referenda presented by Washington
085 million is derived from the local solid waste
plans and does not include collection.
-------
Futures Program to the State legislature. The primary
purpose of this coordinated effort was to integrate the
major capital needs for the 1970's into one comprehensive
financing package, in order to give the state flexibility in
seeking financing.
Capital will be raised through general obligation bonds.
These bonds must be issued by 1980 but can be staged over
several years. Referendum 26 does not stipulate particular
breakdown for capital to be used for liquid waste and
capital for solid waste facilities, and there is no schedule
for capital spending. However, of the total $225 million,
at least $30 million is earmarked for financial assistance
to local governments2 in the form of grants. The state will
pay 50 to 75 percent of the local municipality's construction
budget. Local governments may match their share, using
any financing mechanism available to them (e.g., bonds,
user charges, revenue sharing dollars). Funding will be
dependent upon the availability of matching funds at the
looal level and compliance with the solid waste management
act. Referendum 26 provided immediate allocation of
$10 million3 to local entities for construction of liquid
waste control facilities. No funds have yet been appropriated
to solid waste programs.
Observations
The passage of Referendum 26 underlines the fact that
the State of Washington is committed to a program of solid
waste management. The problem at this stage lies in the
breakdown of the monies between liquid and solid waste
programs. Furthermore, there is no schedule for capital
spending, and local and regional governments do not know
how much state financing will be available to them.
The total financing package proposed by Washington Futures
Program amounted to $465 million. Of the six referenda
(water supply facilities; outdoor recreation; community colleges;
social and health service facilities; waste disposal facilities;
and transportation), only the first five were approved by the
voters (amounting to $415 million).
2
No loans can be made to private enterprises. However, a
local entity may lease its facilities to private operators.
3 To provide immediate capital, the state may use bond anti-
cipation notes.
-------
Wyoming
The Rocky Mountain state of Wyoming has a population
of 332,416 and a vast land area of 97,441 square miles.
Sanitary Engineering Services, an agency within the
State Department of Health and Social Service, is respon-
sible for developing the state's stflid waste management plan.
The regulatory aspect of environmental protection belongs
to the Department of Environmental Surveillance and Control.
Neither the State Legislature, nor the governor, nor
the Department of Health and Social Services consider solid
waste management an essential sector. This attitude re-
flects a concern that state activity would be an infringe-
ment on municipal and individual rights because in Wyoming,
the local dump enjoys a rather unique image. It is a
center for recreational shooting. Wyoming has no staff for
solid waste management; work in this area is performed by
staff borrowed from the Water Quality Office.
Solid Waste System Background
Rugged individualism characterizes Wyoming's solid
waste picture. Although larger municipalities such as
Cheyenne and Caspar do have collection systems and some
towns do use compactor trucks, the state lacks a well-
developed comprehensive collection-disposal strategy.
Private haulers and individual residents take the respon-
sibility for carting the state's daily load of 664 tons of
refuse to local dumps. Individual charges and limited
allocations from taxes finance solid waste disposal in
most communities. The publicly"financed portion of the
operation lies in the land that has been supplied, pur-
chased or leased by individual towns.
Wyoming is now in the primary stages of solid waste
management. Its first state plan was submitted to the
governor in November, 1972 by a state research team.
Focusing on disposal systems now in operation, the study
indicated that a majority of disposal sites are open
dumps rather than "sanitary" landfills and are, therefore,
environmentally unacceptable.
Recent Developments
The Federal Solid Waste Disposal Act of 1965, which
required Wyoming to develop a state plan, served as the
impetus motivating the state to study its present problems
-------
and to set its objectives. The Solid Waste Management Plan
of November, 1972 established three environmental goals:
elimination of health hazards; aesthetic improvement; and
conservation of natural resources.1
To achieve these goals, the state proposed a program of
action. Because municipalities had carried on only
limited solid waste planning, the state saw its role as
a provider of "guidelines, technical, and possibly financial
assistance to those jurisdictions without acceptable plans."2
Under the Plan the state will act in the following fields as
well:
1. Encouraging public awareness of collection
and disposal problems.
2. Personnel training.
3. Studies of disposal practices.
4. Funding.
5. Planning innovations.
6. State staffing.
Wyoming's first step in implementing the State Plan
was to pass a statute prohibiting open burning dumps.3
Combined with this was a new determination to enforce
already existing statutes, many of them on the books since
1945, prohibit water pollution, nuisances and littering and
regulate disposal site location.
Revisions in state laws to require approval, licensing,
and regular inspection of disposal sites will be proposed
at future legislative sessions.
Wyoming then, has recently begun the first essential
stages of a solid waste strategy, namely, public information
and technical a'ssistance. If it is to implement this program
a budget must be accepted and staff positions created.
Wyoming, Solid Waste Management Plan, November 1972, pg. 37.
2Ibid, pg.- 38.
Wyoming Air Quality Standards and Regulations-1972 Section 13.
4Wyoming State Laws, Sections 35-196; 35-482; 35-465; 35-464;
35-465; 35-466; 35-467; and 35-468.
-------
Financing
At present, Wyoming does not have a budget for solid
waste, nor does it have financial assistance program that
could be used for grants or loans to municipalities.
The State Plan mentions two sources for solid waste
funding:
1. A general category including federal grants,
. federal loans, municipal bonds, service
charges, private operations, taxes, and
loans.-
2. A "matching" system which would offer
state funds to any legal entity which
invests capital to reclaim an open dump.
The governor has voiced his support for
legislation of this sort.
The state at this time has no debt, nor has it had
any debt since 1952. In the past fiscal year, most states
have clamored for Federal aid. In 1971, Wyoming,in contrast,
had a modest $44 million in tax revenue, a $14 million
carry forward from 1970, and a net expenditure of $3.6
million, for a surplus of $22 million. From these figures
it is apparent that Wyoming spends far less on state-
sponsored services than do its neighbors in the Far West.
Many communities in the state mirror this conservative
fiscal approach. For them to purchase a suitable landfill,
to staff the site and equip it would double the local budget.
In addition,.a low debt limit virtually prohibits investing
in capital goods (except for those outside the general
obligations of the city, such as hospitals and schools.
In Wyoming the tradition of "rugged individualism" in the
field of solid waste seems to mean that the state will
advise local communities in upgrading landfills and that it
will eventually regulate standards to ensure state-wide
compliance. But there seems little indication that Wyoming
will provide major planning, design, financing or operational
services. These will remain local responsibilities.
The state's requirement that open burning dumps be
closed down has been a cause for concern in many Wyoming
towns. A brief and cursory survey of several will serve to
illustrate the extent of the state's solid waste problem.
In the 400-person town of Medicine Bow an aggressive mayor
was elected on a "clean environment" platform. Under his
aegis an ordinance that prohibits open burning was passed.
The town dump was closed and Medicine Bow was left without
a disposal alternative.
37?
-------
In Park County, near Yellowstone National Park, a
local citizen owns a suitable dumping site and sells keys
to the site for $5 per month. With the revenue from the
fees, the owner occasionally provides a bulldozer to cover
the waste.
Riverton, a town of 8,000 people, has had an acceptable
landfill operation for two years, according to state person-
nel. The annual cost of this operation is $23,802, which
includes amortisation of a used Caterpillar and a Dragline.
Wyoming's smaller communities with population of 5,000 and
less would have difficulty raising this amount, particularly
for expenditures on heavy equipment.
Observations
Wyoming has just begun to implement a solid waste
strategy, so there has been little time for investment
in equipment and facilities. Solid waste is not a top
priority of all programs in the Health Department and
Sanitary Engineering Division. Officials believe that with
the state's open spaces and uncongested towns and cities,
"improved" dumps and new landfills will satisfy its needs
for the next 30 years.
Some state officials do believe that smaller towns
and communities will require financial aid to purchase
equipment and to operate sanitary landfills.
Regional use of bulldozers, shredders, and other
landfill equipment is not feasible because the population is
so dispersed. The distance between towns means that
transportation costs, and hence system costs, would far
exceed the benefits derived from regional disposal or
collection.
^Letter to John F. Wagner, Sanitary E'nginering Services,
Wyoming Department of Health, February 28, 1972, from
Day Evans, Riverton, Wyoming.
GPO 68 3- 86 6
------- |