WASHINGTON -- Solid waste system financings backed by general obligation debt face added exposure to rating downgrades as a result of the Supreme Court's recent decision overturning state and local waste flow control laws, according to Standard & Poor's Corp.
But while the rating agency will be closely watching reaction to the ruling by issuers of both general obligation and revenue bonds, Standard & Poor's said it sees little immediate impact on ratings.
In an article in this week's issue of CreditWeek Municipal, Standard & Poor's analysts said the recent ruling in C&A Carbone v. Clarkstown, N.Y., focused much attention on revenue bond financings of solid waste systems and associated credit impact.
"However, G.O.-backed solid waste and resource recovery financings also are subject to the increased exposure, as municipalities are now faced with increasing competition for sufficient streams of solid waste," the article said.
"To the extent that an uncompetitive position and a subsequent erosion of tipping fee revenues puts pressure on a municipality's general fund, general obligation ratings may be hurt," Standard & Poor's said. "However, an examination of issuers with significant amounts of S&P-rated G.O. solid waste debt suggests that most ratings will remain stable."
Many issuers already have taken steps in lieu of flow control to ensure an adequate waste supply to guarantee revenue to pay debt service on bonds, the analysts said.
The primary methods for ensuring a waste stream in the absence of flow control ordinances, which gave states and localities power to dictate where waste is to be sent for disposal, are subsidizing or reducing "tipping" fees and removing incentives for haulers to deliver waste to competing facilities, the analysts said.
Rates generally are competitive, with the exception of the Camden County Pollution Control Authority in New Jersey, which has high tipping fees and relies heavily on flow control ~authority, Standard & Poor's analyst Malachy Fallon said. Standard & Poor's has revised the outlook for Camden to negative.
In many systems, there is general fund support or alternative user fee support to help keep tipping fees down, he said.
But "it remains to be seen" what legal challenges are made at the local level to flow control laws, Fallon said.
The New Jersey Department of Environmental Protection notified haulers after the May 16 high court ruling that they still must comply with local flow control requirements in the state.
New Jersey regulates solid waste facilities as public utilities that operate in state-granted franchises to local governments. Franchise holders are expected to defend their authority to direct waste to a designated facility on the basis that they own a property interest in the waste under the franchise, according to some analysts.
Standard & Poor's said another uncertainty about flow control is congressional response to the high court's ruling. In addition to restoring flow control authority, Congress also may seek to allow state governors to limit waste imports, the agency said. Such a measure "would distort the market by limiting disposal options and driving tipping fees up in states with limited capacity," the agency said.
