Landfills are not usually exciting in the world of finance. But that's soon to change.

The Governmental Accounting Standards Board has issued disclosure rules for municipal solid-waste landfill closure and post-closure care costs. The rules take effect in periods beginning after June 15, 1993. They are certain to affect municipal landfills' tipping fees and possibly debt issued to build the landfills.

The GASB statement is directed at the financial reporting required of approximately 6,000 landfills in the United States. About 80% are operated by some type of governmental entity.

The purpose is to account for future municipal landfill closure and post-closure costs on a current basis. Specifically, GASB requires that notes in financial statements disclose:

* The nature and source of landfill closure and post-closure care requirements under local, state or federal laws or regulations.

* That closure and post-closure care costs are recognized based on estimated total current costs while the landfill is operating regardless of when cash disbursements are made.

* The unrecognized portion of estimated total closure and post-closure care costs.

* Estimated remaining useful landfill life, both in approximate years and in estimated capacity.

* How closure and post-closure care liabilities are being financed and whether that financing is in compliance with applicable local, state, or federal laws or regulations.

* The nature of the estimates used and the potential for changes in those estimates due to inflation, changes in technology, or changes in applicable laws or regulations.

* If net prepaid landfill closure and post-closure care cost is reported, the nature of this amount.

While the GASB rule calls for reasonable cost estimates in current dollars, it also requires that the funding mechanism for future payments be disclosed.

Critically important is the contingent liability that many governmental entities have regarding municipal landfill closure and post-closure care costs; these costs occur after the landfill is full.

Since the municipal landfill is no longer accepting solid waste, it has no current revenue stream to pay for these costs. Either a trust fund or a governmental entity must pay this liability. This is the area where disclosures can affect financings.

Newer municipal landfills have closure trust funds. They are usually invested in securities with a direct or contingent guarantee of the federal government or one of its agencies. Those trust funds should be designed to discharge all closure and post-closure costs occurring after the municipal landfill is full.

What if the trust fund is deficient and the landfill is full and no longer generating revenue? If another governmental entity has executed a service contract guaranteeing the landfill closure, the impact of this contingent liability might materially alter the sponsoring government's credit characteristics.

Take the example of a municipal landfill operated by an independent authority created by a county government, a form common in New Jersey. The New Jersey-based landfill will file a closure and post-closure plan with the New Jersey Department of Environmental Protection and Energy, receive engineering and design approval, and also submit a financing plan.

In the financing plan, the trust fund projection incorporates the current dollar costs of activities and construction that occur during the active life of the municipal landfill and the 30 years required by the U.S. Environmental Protection Agency following its closure. The new GASB rule will cause auditor comment on all this regulatory compliance.

New Jersey requires that inflation be estimated with a 10-year moving average of the gross domestic product deflator. The state also wants trust fund earnings projected for the entire life of the fund to show that adequate moneys will be available for the entire post-closure 30 years. Data are reviewed by New Jersey regulators every two years.

But the issues in New Jersey go beyond the municipal landfill operation.

The county government that sponsored the landfill has the ultimate responsibility for closure and may be contingently liable for trust fund deficiencies. County governments rarely mention these types of contingent liabilities to their constituents.

We will soon know how many closure trust funds are underfunded, whether or not the funding mechanisms are proper and how deficiencies are being amortized. And we will see how contingent liabilities for municipal landfills are handled by their sponsoring governments. We will also see how the rating agencies will deal with these liabilities they assess the quality of debt.

What if tipping fees must increase to cover closure fund deficiencies? Municipal landfills are in a competitive business. If they raise fees high enough, the customer goes elsewhere. Rating agencies will also have to deal with this contingent risk to the revenue stream.

Billions of dollars of bonds have been issued to finance landfills. Billions more are from governmental entities whose balance sheets will be incorporating municipal landfill closure liabilities. The sleepy game of landfill finance is about to change.

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