MARCH 18, 1997

I am Randy Johnson, Chair of the Board of Commissioners of Hennepin County, Minnesota, and President-elect of the National Association of Counties. NACo represents the over-3000 counties in the United States.

We appreciate being invited to participate in this hearing, although once again we find that the panel is skewed toward witnesses that are apparently opposed to local governments making decisions about local issues and repaying their bonded indebtedness. Despite being outnumbered, we believe that a review of the real issues surrounding flow control, rather than some oft-repeated slogans like "government monopoly versus free markets", leads clearly to the conclusion that our position is sounder public policy and minimizes the federal government role in local government.

Counties are involved with solid waste flow control for two primary reasons. First, trash disposal has been a traditional, fundamental public health and safety function of local governments in this country for more than two centuries - even before the Constitution was adopted. Citizens demand and expect that safe disposal of garbage will be assured by their local government. When garbage piles up on the streets because of collection problems or landfills leak into water supplies, it is the local governments that take most of the heat.

Secondly, most states mandate that we handle garbage and trash. States mandated recycling quotas, mandated long-range planning requirements, mandated items that must be excluded from landfills and incineration, and mandated consumer education programs. In short, we must deal with trash by state law.

While we are not here today to complain about state mandates, it is important for you to understand that in nearly every case, we didn't ask our state legislatures for these mandates. We did ask for the financial tools to carry out those mandates. Flow control was one of those tools.

When these mandates were imposed, not every county chose to adopt flow control as a tool for financing their waste management system. In fact, less than 20% of the municipal garbage and trash stream in the United States is - or ever has been - subject to any type of flow control. Any argument that flow control grossly interferes with the profits of business or has an impact on the economy, is simply not supported by the facts.

Those counties and cities that were given flow control authority - like my county - and those counties that were mandated by state law to exercise that authority - like counties in New Jersey - undertook a series of programs to carry out our responsibilities to manage the garbage generated within our own borders. We tried to solve local problems at the local level. There is one other point that I want to make at this time. Municipalities that object to flow control requirements exercised by their counties over garbage generated by cities and towns should take their concerns to their own state legislatures, not to the Congress of the United States. It is the state government, not the Federal government, that divides up the responsibilities between cities and counties in each state. This Congress should not be interfering in state disputes among local units of government.

A great deal of investment in public infrastructure has taken place in the local governments that used flow control as a method to finance facilities. Since 1980, over $20 billion in state and local bond issues were sold for solid waste facilities. Unless legislation is promptly enacted by this Congress, many communities face severe financial consequences. Attached to my testimony is a list of just some of the problems that we are learning about from around the country. The list gets longer every day that Congress postpones action

Here are some of the impacts. The national credit-rating agencies downgraded debt ratings for 17 local and state solid waste authorities since the Supreme Court threw out a New York flow control ordinance three years ago . Moody's downgraded 15 issues, of which approximately half were downgraded to "junk bond" status. Standard and Poor's downgraded 4 issues, 2 of which were classified as "junk bonds". Fitch downgraded 3 issues to "junk bond" status.

In addition to the downgrades, Moody's has 8 additional bond issues under credit review. As litigation increases and the cases work their way through the courts, more downgrades are likely.

The total outstanding debt that has either been downgraded or put on a credit watch for potential downgrading by the rating agencies since the Carbone case is over $3.3 billion by local public agencies.

What does this mean? It means that the next time these governments try to go to the bond market to borrow funds for other public projects - like jails or bridges or schools - they may be unable to find any market for the bonds. For those that are able to find buyers of their debt, the interest rate will be significantly higher, by as much as 10 - 20 percent for mandated governmental programs. This additional cost will be borne by local taxpayers - businesses as well as residents.

But it is not only downgrades that we are concerned about. We are seeing other detrimental and expensive effects from the Congress' lack of action on flow control legislation. In my county, we have been sued by four businesses and some individuals in a class action suit regarding our flow control ordinance. A year ago the federal court certified a class consisting of all Hennepin County commercial and residential waste generators - that is virtually every person in the County! The court already found that the ordinance violated the Commerce Clause based on the Carbone decision, and permanently enjoined its enforcement.

Now we will begin trying the second phase of the case - the exact amount of the alleged damages. Plaintiffs are claiming $154 million - nearly one-half of Hennepin County's total annual property tax levy. To add insult to injury, if the court allows this case to proceed to final judgment because Congress has not acted, Hennepin County taxpayers will also have to pay millions of dollars in plaintiffs' attorneys' fees! Other lawsuits have been filed and more are threatened.

In other counties, similarly difficult impacts are occurring. In Dade County, Florida, 280 employees were fired, water and sewer rates were raised by 12%, recycling programs were cut, enforcement of illegal dumping was reduced, and other environmental programs were cut back.

Other counties in Florida, Maryland, New York, North Carolina, Iowa, and Virginia have had to increase local taxes and/or fire employees. Cuts in recycling programs, or new fees to pay for recycling are occurring all over. The progress that we have made in recycling and waste reduction over the last decade in these communities is being lost.

Another important trend that we see happening from the loss of flow control is that waste haulers are paying less to dump trash and local taxpayers are picking up the tab. In fact, we have evidence to show that although the disposal cost to waste haulers is going down, they are not necessarily passing these savings on to their customers. In Falmouth, Maine, for example, the city raised its residential rates by 50 percent and reduced its commercial disposal rates for businesses. Did the businesses see those savings? On the contrary - the private haulers just pocketed the savings. So the businesses and residents of some communities are paying twice - once to the waste hauler for the same service at the same price and again to the county in higher taxes or fees to pay for the disposal facilities.

The debate over flow control has never been a disagreement between the public sector and the private sector. Local governments acted in good faith, under the laws that our states adopted. We built, or in most cases, entered into to competitively-bid public-private partnerships to build facilities that are now being undercut by temporarily cheap landfills and temporarily cheap landfill prices. We are simply trying to cover the public investment in the facilities that we were mandated to build.

Similar to the electric utility restructuring debate, we are seeking a way to cover our "stranded investments" in these facilities. It is only equity that we are asking for, nothing more.

We hope that this Committee sees the value in supporting legislation that will allow us to continue to pay off our bonds and manage our systems that way the our citizens want us to manage them. We urge you not to tie our hands and make us have to explain to taxpayers why Congress is forcing us to increase local taxes.

Thank you.




Without Flow Control, Public Officials Around the Country Face Severe Problems:

a) b) └└Dade County, Florida lowered disposal fees by more than 20%, fired 280 employees, renegotiated contracts, restructured debt, sharply reduced capital expenditures, increased taxpayers' surcharge 12 % on water and sewer bills, as well as increasing the cost of carting services, cut recycling efforts, delayed development of two household chemical collection facilities, downsized the illegal dumping task force, and cut the county's mulching program. Despite Dade County's significant reduction in tip fees, cost savings, and revenue enhancements, the County's bond rating was lowered by the national rating companies. x └└Virginia's Southeastern Public Service Authority (SPSA) lost more than 50% of its general cash balance, fired 50 employees, increased the user fee for disposal and instituted a new fee for recycling. SPSA's bonds were downgraded bonds due to lack of flow control. x └└Hennepin County, Minnesota faces more than $150 million in court-imposed judgments stemming from a class-action lawsuit by waste haulers challenging the County's flow control authority. Taxes could more than double to cover the County's liability. x └└Atlantic County and surrounding counties in New Jersey lost more than $2 million dollars in revenues. Staff was cut by eight percent. Development of a recycling center stopped. Bonds used to finance solid waste facilities and services have been downgraded in Union County, and Camden County to non-investment ("junk bond") status. x └└The City of Falmouth, Maine has been compelled to raise its residential rates by more than 50% while reducing commercial disposal rates in order to entice haulers of commercial waste to use the town's facility. Almost $3 million per year in disposal fees have been shifted from commercial haulers to residential taxpayers, yet businesses have seen no reduction in their waste hauling fees because private haulers are pocketing the savings. x └└Iredell County, North Carolina, has lost nearly $300,000 in cash revenues. x └└Charles County, Maryland lost 40% of its facility revenues, fired employees and cut recycling efforts. It faces the potential of having to subsidize its landfill with tax revenues. x x └└Lee County, Iowa relied upon flow control to organize a 4-county interstate solid waste authority to share the debt of $8.9 million for a disposal site. Three of the counties have now abandoned the authority, leaving the stranded debt to be paid by a population of 40,000 people. To repay the bonds the county has been forced to impose a waste management fee, the burden of which falls mainly on small businesses which pay an average of $240 year. x └└Skagit County, Washington was forced to close its revenue producing waste-to-energy plant, leaving the County with a bonded indebtedness of $12 million for which they have no revenue source other than local taxes. x └└Since the Carbone decision in mid-1994, the Waste System Authority of Eastern Montgomery County, Pennsylvania has been forced to shift the cost of waste disposal from the commercial ratepayers to residential taxpayers to cover the costs of the bond payments. Municipalities will see their rates increased by $1,170,000 in 1997 to replace $3.8 million in lost disposal fees from waste haulers. If commercial waste continues to leave the area for cheap landfills, municipalities will have to cover the revenue shortfall of $5.5 million, or approximately $129/ton. x └└The loss of flow control in Savannah, Georgia costs city taxpayers over $1.3 million every year and increases the amount of garbage taking up valuable landfill space instead of being converted into energy. The city estimates that every day's delay of passage of federal flow control legislation is costing each Savannah taxpayer $3,561. x └└New Hanover County, North Carolina stopped development of a recycling facility and raised taxes while transferring nearly $10.5 million from general funds to cover the more than $18 million in lost revenues. x └└Warren and Washington Counties, NY face up to a $2 million shortfall in revenues from the district's waste-to-energy plant as a result of reduced tipping fees, adopted to compete with cheap landfills. To raise enough money to meet debt service payments on the plant, the counties plan to raise taxes, however such an increase will violate state tax caps and subject the counties to a legal challenge from the local taxpayers association. x └└Lee County, Florida increased property taxes on an emergency basis to cover $7.8 million in lost revenues, representing 30% of its solid waste department's operating budget. Property owners face a special assessment over the longer-term. x └└Eau Claire County, Wisconsin has lost 80 percent of the tonnage at their solid waste facility that was used to guarantee the bonds to finance the facility. This loss will cost the county, whose population is only 85,000, roughly $1 million per year over the next six years in taxes to pay off the debt used to finance the facility. x x x └└The Town of Babylon, New York lost $2 million in 1995 alone - 6% of its total town budget. The town was forced to lay off 70 employees. Babylon created a commercial garbage district to offset losses, and was sued by haulers. The lawsuit cost the town nearly $5 million in lost revenues and legal expenses. x x └└Whatcom County, Washington was ordered by a federal arbitrator to pay $75,000 in damages to a local hauler who refused to meet the county's recycling performance targets under the flow control ordinance. As a result, the County has ceased providing incentives to private haulers for recycling. x └└The bond rating of the solid waste authority of St. Lawrence County, New York was lowered as the authority faces a $1 million short-fall this year. The County will need to borrow up to $3 million to subsidize the authority. x └└The Metro Waste Authority of Des Moines, Iowa has lost nearly $1 million in waste stream revenue to nearby landfills that have cheaper rates, resolting in a downsizing of the Authority by 35%. x └└Calvert County, Maryland cut recycling efforts and employee hours by 30% to avoid layoffs due to lost revenues. x └└Citrus County, Florida delayed capital expenditures as it faces loosing up to 60% of its waste stream to out-of-county landfills. x └└A radical drop in the usage of the county-operated landfills, and resulting funding shortage, forced Prince George's County, Maryland to impose new fees for recycling on county taxpayers. The backlash from the new fees helped pass a taxpayer-let ballot initiative that requires any new county fees to be approved by referendum. x └└St. Lucie County, Florida lost 30% of its landfill revenues and fired eleven employees. x └└The bond ratings of the waste-to-energy facility of Mercer County, New Jersey were downgraded to a B rating (a "junk" bond rating) after federal courts declared the state's flow control law to be unconstitutional. The county Board of Freeholders was forced to cancel the $200 million facility, leaving county taxpayers with the dilemma of how to pay off the bonds. x └└Dutchess County, New York taxpayers paid $5 million more in property taxes in the last year-and-a-half in addition to their garbage bills due to the loss of waste volume. x x └└Seven metropolitan Minnesota counties have seen a increased reliance on out-of-state landfills. After a decade of progress in managing waste within their own region and diverting waste from landfills by use of recycling and resource recovery facilities, from a 1993 landfilling rate of 11%, the counties report that landfilling has reversed direction and is now over 18%. x └└Oneida and Herkimer Counties in New York face a lawsuit threatening to scuttle the counties' integrated waste management system and force property taxpayers to pay off $47 million in bonds. x └└Nassau County, Florida lost 20% of its facility revenues. x └└Montgomery, Otsego, and Schoharie Counties in New York stopped recycling collection services and face dismantling the entire solid waste management system. The bond insurer for the counties' facilities stated that future actions "could totally destroy the established belief in the municipal bond market." └└Huron County, Ohio has lost one-third of the tonnage previous delivered to its facility. └└Prince William County, Virginia is losing $1.8 million annually in revenues. To make up for the loss, citizens are now required to pay higher fees for special services. Programs to reclaim old landfill space for recreation areas, promote recycling, and expand recycling programs have been reduced or eliminated. └└Wright County, Minnesota has closed an innovative high-tech composting facility, financed with taxpayer-funded bonds. Twenty-five employees have lost their jobs and the cost of paying off the bonds will be born by a special yearly assessment on all property owners. x └└Warren County, New Jersey issued debt to build a waste facility, entering into an agreement with Huntington and Somerset Counties to supply waste to the facilities. If these counties cannot exercise flow control, the burden of the debt service will fall entirely on Warren County residents, increasing their total indebtedness by 400%. The added costs would force a 30% increase in the county-purpose tax burden and the debt-per-capita ratio would skyrocket from one of the lowest in the state of New Jersey to one of the highest. PLEASE SUPPORT FLOW CONTROL PROTECTING COUNTIES' AND MUNICIPALITIES' FISCAL OBLIGATIONS