Testimony of David K. Leff,
Assistant Commissioner of the Connecticut Department of Environmental Protection
from the
Hearing of the U.S. Senate Committee on Environment and Public Works
on Flow Control
March 18, 1997

Good morning. My name is David Leff. I am Assistant Commissioner of the Connecticut Department of Environmental Protection. I am accompanied today by Robert Wright, Acting President of the Connecticut Resources Recovery Authority. The Authority has been responsible for the financing and development of four of Connecticut's six waste to energy projects. Thank you for this opportunity to provide testimony on the significant impact which the U.S. Supreme Court decision in the matter of C&A Carbone, Inc. V. Town of Clarkstown has had on the solid waste management system in the State of Connecticut.

By Connecticut statute, each municipality must make provision for the safe and sanitary disposal of solid waste generated within its boundaries. More than a decade ago, it became clear that this could no longer be achieved through the use of traditional municipal landfills. Stricter environmental regulations, limited geologically appropriate sites, and public opinion prevented the siting of new municipal solid waste landfills as old landfills were rapidly reaching their capacity. In order to fulfill their statutory obligations, the municipalities, with the help of the State Department of Environmental Protection and the Connecticut Resources Recovery Authority, created interlocal agreements to develop sufficient waste-to-energy facilities to serve the State's needs, approximately 2.2 million tons per year of statewide capacity. The premise of this integrated waste management system of transfer stations, waste-to-energy facilities and residue landfills was that it is a state's responsibility to be as self-sufficient as possible in its waste disposal practices.

As you know, waste-to-energy projects are not inexpensive. Their development required the issuance of hundreds of millions of dollars of revenue bonds secured by the full faith and credit of the municipalities associated with each project. The bonded indebtedness for Connecticut's six waste-to-energy facilities is now about $750 million.

At the time that the projects were developed, the municipalities anticipated that the fixed costs of paying off the bonds could be paid through a combination of energy revenues, disposal or "tipping" fees from member towns committed to the projects, and from towns and haulers which used the projects on a periodic or "spot" basis. This was a reasonable expectation since per capita waste generation was increasing, Connecticut's population was growing, and demand for disposal capacity was high, driving the cost of "spot" tipping fees well above the level of member tipping fees.

It was in this context that the municipalities signed long-term "put-or-pay"contracts to guarantee payment of the bonds issued for the projects. Through these contracts, they committed to delivering a minimum annual tonnage of municipal solid waste to their respective projects and to pay the difference in tipping fees if they failed to deliver that minimum amount. To ensure that they would never fall below their minimum tonnage commitments, the municipalities passed flow control ordinances, requiring that municipal solid waste generated within their borders be disposed at the waste-to-energy facility to which they were contractually committed. The ordinances vary from municipality to municipality, but their basic structure was to assure that adequate waste was delivered to meet the "put-or-pay" commitments.

One hundred and thirty-seven of Connecticut's 169 municipalities, representing 86% of its population, have long-term "put-or-pay" contracts with one of the State's waste-to-energy facilities. Five municipalities continue to use Connecticut's three remaining municipal solid waste landfills. The other municipalities either send their municipal solid waste out of state or utilize one of Connecticut's waste-to-energy facilities on a spot market basis.

For almost a decade, these waste-to-energy projects have enabled the municipalities to fulfill their statutory solid waste disposal obligation in an environmentally superior manner. And when the State passed its Mandatory Recycling Act in 1987, these projects provided a basis for the development of a new recycling infrastructure, including several materials recovery facilities. As of FY1995, Connecticut recycled about 23% of its municipal solid waste, with a statutory goal of reaching 40% by the year 2000. The State sent 59% to waste-to-energy projects in state, landfilled 17% in state, and disposed of only 1% out-of-state. In short, Connecticut had carefully established an environmentally responsible and comprehensive municipal solid waste management system.

By the early 1990s, Connecticut's economy had slowed significantly, and its population stopped growing, so the anticipated increase in solid waste generation did not occur. In addition, the recycling rate rapidly increased from less than 10% to about 23% after 1991. This meant that there was less Connecticut waste requiring disposal than had been projected when the waste-to-energy projects were designed and developed. Despite these changes, most municipalities continued to meet their contractual commitments to deliver waste to their respective projects.

The Carbone decision dramatically changed the economics of Connecticut's waste-to-energy projects and put the State and the municipalities contracted to the projects at great risk. Without flow control, haulers have more disposal options, so Connecticut's waste-to-energy facilities have had to lower their spot market tipping fees to compete for spot tonnage. Since the 1980s, the spot market rates have dropped 30-50% in Connecticut. Lower spot market revenues combined with unchanging energy revenues meant that member tipping fees have had to increase so that the fixed costs of the waste-to-energy facilities could be paid. This put an additional and unexpected burden on the municipalities.

The increasing differential in tipping fees provided a further incentive for those haulers who paid the tipping fees directly to divert member town waste from the waste-to-energy facilities to which the towns were committed. The Carbone decision legitimized this diversion and created a vicious cycle. The less member waste that was delivered to the projects, the higher the member tipping fee had to be to cover the projects' fixed costs. The higher the member tipping fee, the greater the incentive to divert waste to a less expensive disposal facility. As of FY 1996, more than half of the Connecticut municipalities with minimum tonnage commitments did not meet them. In some cases, the shortfall was quite small and in some projects the overages of other member towns made up the shortfall so individual municipalities were not penalized.

The diversion of member waste from Connecticut's waste-to-energy facilities was at first gradual probably because private haulers believed that Congress would enact legislation to authorize flow control, at least in states whose solid waste management systems depended on it. During the last year, however, haulers have become more aggressive in redirecting waste to other facilities because Congress has not taken action. Even those projects which were meeting their commitments in FY1996 are experiencing substantial decreases in tonnages delivered to their facilities. For example, the Bristol Resource Recovery Facility Operating Committee, an interlocal which developed a 237,250 tons per year facility serving 14 municipalities, has recently documented a 20% loss in tonnage. This facility has never experienced such a shortfall and attributes it to the diversion of waste by private haulers to other disposal facilities. The Operating Committee estimates that this reduction will result in an annual loss of revenue from tipping fees and reduced energy production of approximately $450,000.

The Housatonic Resource Recovery Authority (HRRA), which is a quasi-public solid waste management authority in the Danbury area, reported that tonnage decreased 41% during the month of February alone. HRRA attributes the reduction to a new hauler taking waste to a facility other than the one to which the Housatonic municipalities are committed. If this situation continues, the municipalities will fall well below their annual put-or-pay commitment. The HRRA has stated that it is not aware of any reduction in disposal costs being passed on to consumers by virtue of the hauler using a facility with a lower tipping fee.

A spokesperson for the Southeastern Regional Resource Recovery Authority, which helped develop a 251,485 tons per year waste-to-energy facility Southeastern Connecticut, notes that if municipalities have to tax their citizens to pay penalties for not delivering their annual tonnage minimums, residents will actually end up paying twice - once to their individual haulers and once through their municipal taxes.

A further consequence of this situation is that there is no longer incentive for municipalities to promote their recycling programs because increasing recycling tonnages would further exacerbate their difficulty in meeting put-or-pay waste-to-energy commitments. Although every one of Connecticut's municipalities has a curbside recycling program in place, the State's recycling rate has remained flat at 23% for the last three years. Municipalities which had recycling coordinators are laying them off, and initiatives to encourage increased business and institutional recycling are on hold.

An effective and environmentally desirable system which was built in good faith by responsible public officials is being destroyed by the lack of flow control legislation. This is clearly not consistent with the solid waste management hierarchy adopted by Connecticut or the federal government. And it has the potential to do great financial damage to Connecticut's municipalities and to the State as a whole. Moody's Investors Service has already downgraded $109,340,000 of bonds issued to support the Southeastern Connecticut Project. The seventeen municipalities which have guaranteed the revenues for this project are now confronted with a possible significant reduction in access to public financing and increased finance costs. Moody's has currently placed $152,840,000 in bonds issued for CRRA's Bridgeport 821,250 tons per year facility on its "unstable-credit watch" category.

The National Association of Counties, National League of Cities, Governmental Finance Officers Association, Solid Waste Association of North America, American Public Works Association, Local Government Coalition for Environmentally Sound MSW Management, and the National Coalition for Flow Control sent a letter dated February 26, 1997, to Congress which documented other cases resulting from the loss of flow control and requested federal flow control legislation. Connecticut is concerned that action must be taken soon to protect municipalities which acted in good faith to manage their solid waste disposal from the type of financial crisis faced by Orange County, California.

If the municipalities are unable to meet their contractual commitments to their waste-to-energy facilities and are forced to default on the approximately $750 million in bonds which financed them, municipalities and the State will suffer even greater financial consequences. But this will happen only after severe hardship for the municipalities, and it will add a tremendous burden to a state which is only now seeing signs of economic recovery after a long, long period of recession.

Connecticut supports the premise that the management of solid waste should continue to be a function of state, regional, and local government, and our municipalities are taking appropriate measures to manage their problems. But the future without flow control is not bright. Last session the State of Connecticut supported S.534, known as the Interstate Transportation of Municipal Solid Waste Act of 1995, which would have provided Connecticut municipalities with adequate flow control protection. We urge the Senate to pass similar enabling legislation this session which supports federal flow control.