Testimony of Harold J. Anderson III
Chief Counsel, Solid Waste Authority of Central Ohio
Hearings on S. 1194
“The Solid Waste Interstate Transportation and Local Authority Act”
March 20, 2002
Committee on Environment and Public Works
Senate of the United States
on behalf of the
Local Government Coalition for Environmentally Sound
Municipal Solid Waste Management
Chairman Jeffords and members of the Committee:
My name is Harold Anderson and I am Chief Counsel of the Solid Waste Authority of Central Ohio (“SWACO”). I am testifying on behalf of SWACO and the Local Government Coalition for Environmentally Sound Municipal Solid Waste Management (“Coalition”), a joint effort by a number of cities, counties, solid waste management authorities and related associations concerned with municipal solid waste flow control, interstate waste transportation and other municipal solid waste issues.
We commend you, Chairman Jeffords, for holding this hearing, and for allowing the long-standing issues of interstate waste and flow control to again be brought before the Committee. We also thank Senator Voinovich for a very similar bill that we understand is expected to be introduced in the near future. And last, but certainly not least, we also want to extend sincere appreciation to Senator Specter for sponsoring S. 1194, as well Senators Wyden, Warner, Stabenow and Santorum for their co-sponsorship of the bill.
My testimony will briefly address flow control and interstate waste transportation. Before turning to those points, first let me tell you about SWACO. We are among the ten largest public waste management authorities in America. SWACO strongly embraces recycling and other environmentally friendly programs. In fact, SWACO recently took over the recycling program for the 700,000 residents of the City of Columbus. SWACO strongly embraces partnerships with the private sector. Our public landfill is operated by Waste Management, Inc.
Our Coalition supports S. 1194. The bill would protect stranded investment by providing limited grandfather authority for the use of “flow control.” These are investments that many communities and other public bodies made in direct response to federal mandates arising under the Resource Conservation and Recovery Act and parallel state laws that give local governments primary responsibility to assure adequate long-term capacity to manage in an environmentally sound manner all of the municipal solid waste generated within their respective jurisdictions.
“Flow control” is a mechanism that allows local governments to meet that obligation in a fiscally responsible manner. As the term implies, a local government will “control the flow” of municipal solid waste by selecting -- and designating by ordinance -- a specific facility (or set of facilities) for municipal solid waste processing, disposal, etc.
Providing that capacity or infrastructure will often require significant financial commitments which are, in turn, secured through revenue bonds and similar flow control-dependent financial arrangements. In fact, since 1980 over $20 billion in state and local bonds have been issued in reliance on flow control authority for the construction of solid waste facilities.
Unfortunately, in the Carbone case the Supreme Court ruled that the flow control ordinance at issue in the case violated the Commerce Clause. I should hasten to note that prior to Carbone flow control had repeatedly been validated by federal court decisions spanning more than two decades from the 1970’s into the 1990’s, and statutes in more than 20 states authorized local governments to employ flow control. In fact, in previous hearings before this Committee, Moody’s Investors Service, Inc., testified, and I quote, that “[p]rior to the Carbone decision, Moody’s viewed the state and local flow control laws and ordinances as valid, binding and enforceable.”
The Impact of the Carbone Decision
The consequences confronting communities throughout the nation due to the loss of flow control authority and the absence of federal legislation such as S. 1194 include steep declines in waste deliveries and resulting bond downgrades, increased taxes to offset declines in tipping fee revenue, termination of recycling and other environmentally essential programs, employee layoffs and terminations, depletion of cash reserves, and ever-increasing upward pressure on tipping fees as the unavoidable fixed cost burden of waste management infrastructure is shared by fewer and fewer users.
My agency, SWACO, is a case in point. We have over $150 million of stranded investment in a waste-to-energy facility that was closed on the heels of the Carbone decision. After the Carbone ruling we laid off 250 employees and had to impose a $7 per ton fee -- a waste tax -- on all municipal solid waste generated in Franklin County. We had to take that action to generate sufficient revenue to meet our debt obligations in the absence of flow control authority.
In terms of the bond downgrades that I mentioned a moment ago, the principal rating agencies, Moody’s and Standard and Poor’s, have downgraded a considerable number of bonds (at least 22), and the total outstanding solid waste debt for public agencies that has been downgraded or placed on credit watch for potential downgrading since Carbone is estimated at over $3.5 billion.
Compounding these difficulties is the spillover effect for other public investment needs. Specifically, when a flow control-reliant community goes to the bond market to finance essential needs such as schools, roads, public safety facilities, wastewater treatment plants, etc., the interest rate that it must pay is likely to be higher due to the instability that results from the absence of federal flow control legislation. Those additional costs are ultimately borne by the local taxpayers.
I must also emphasize that we have not defaulted on our bonds and, like many other local governments, we have made significant financial sacrifices to meet our obligations. Along with other communities and public bodies, we will continue to do everything within our ability to avoid the truly debilitating impact of a bond default.
Unfortunately, the absence of such a default has led some to suggest that we “do not need” flow control legislation. That suggestion would be correct if -- and only if -- one also concludes (which we do not) that the better approach is to increase local taxes to meet financial obligations undertaken a number of years ago in good faith reliance on flow control authority. Aside from its unfairness, that position would contradict federal policy announced more than a decade ago to discourage use of general taxes to fund solid waste management. And surely no one would seriously suggest that flow control-reliant communities must endure an Orange County-type default to justify congressional action.
S. 1194 Provides Narrow Protection For Stranded Investment
S. 1194 is narrow legislation that protects reliance interests. The bill provides "grandfather" authority for use of flow control by communities with stranded investment (or contractual obligations) undertaken in reliance on the previous availability of flow control. In that regard, just as stranded cost protection for a utility recognizes that industry restructuring “changed the rules of the game” in terms of a utility’s ability to recover various prudently incurred investments from the past, the Carbone decision “changed the rules” for local governments that had previously relied on flow control to secure their investments in the waste management infrastructure needed to serve their communities.
The authority provided by S. 1194 is also self-limiting. By that I mean it is confined to recovery of a narrow list of expenses for waste disposal and recycling facilities (e.g., principal and interest on bonds and "put or pay" contract obligations). As a result, the flow control authority provided by S. 1194 will only be used where necessary and only for as long as necessary.
In addition, the bill protects the interests of non-flow controlled facilities by making the exercise of flow control subordinate to post-1994 contractual relationships that would be impaired by the exercise of flow control.
Finally, the bill contains a firm "sunset" provision that limits its protection (i) to investments and contractual obligations undertaken in 1994 or earlier and (ii) only for the duration of such investments or obligations as they stood in 1994. Put another way, under this legislation, flow control authority can be re-instituted only for communities that had relied on flow control before May 1994, and once pre-Carbone obligations are satisfied a community’s authority under the bill terminates.
Flow Control Is Not Anti-Competitive Or Anti-Private Enterprise
It should also be emphasized that flow control is not anti-competitive or anti-private enterprise. In considering this point it is important to bear in mind that the tipping fees -- user fees -- charged for municipal solid waste management services in communities that rely on flow control are limited to recovering the costs of those services (recycling, household hazardous waste collection, composting, public education, etc.). Moreover, communities that rely on flow control also rely to the maximum extent possible on private enterprise for their waste management infrastructure. SWACO and the other members of the Coalition submitting this statement are a case in point. The clear majority of the recycling/waste management facilities with respect to which our members would exercise flow control authority are privately owned and/or operated.
Flow Control Does Not Increase The Overall Cost For Waste Management Services
Nor does flow control increase prices or result in the imposition of higher costs for a given category of service. The local governments that have relied on flow control adhere to competitive bidding requirements that make cost a prime consideration in selecting among alternative waste management facilities or vendors. Tipping fees in communities that rely on flow control will almost always recover, in addition to the cost to dispose of non-recyclable waste, the costs of other essential services such as recycling, household hazardous waste collection, etc. Nevertheless, U.S.EPA concluded in its post-Carbone report to Congress on flow control that when the tipping fees paid in those communities are broken down into their component parts, the resulting prices are comparable to those for non-flow controlled facilities.
Interstate Waste Transportation
Finally, I also want to commend your bills, Senators Specter and Voinovich, for addressing the issue of interstate waste transportation. SWACO strongly supports legislation that will provide communities with appropriate means to husband the finite natural resources and waste management capacity in their states and facilitate more effective local planning for waste management needs. We believe that host community agreements play a fundamental role in this matter and want to make sure that our communities have appropriate control over waste imports from other states. In the long run, this will benefit both importing and exporting states by increasing the importance of waste reduction and minimization programs and encouraging comprehensive planning by state and local governments.
The interstate waste transportation legislation before this Committee addresses a serious national problem. Ohio is a case in point. Communities across our state have serious concerns with trash from outside Ohio being disposed in our state. This local concern has resulted in a large number of bills being introduced in Ohio’s Statehouse ranging from moratoriums on landfill construction to commissions to study the issue. Each of these bills, while well intentioned, are bad public policy that will increase the cost for taxpayers while doing nothing to help the environment.
SWACO is part of a coalition of public and private waste companies and business customers that advocate against these bills in the Ohio Statehouse. Our message to members of the Ohio General Assembly is simple: the concerns of local communities regarding out of state waste needs to be resolved in the Congress and not the Statehouse.
In conclusion, I certainly appreciate the opportunity to appear before the Committee this morning, and I sincerely hope we can finally resolve these issues. We stand ready to help.