Standard & Poor's Corp. yesterday downgraded to BBB from A its rating of $179.5 million of Lancaster County Solid Waste Management Authority's resource recovery system revenue bonds, because the Pennsylvania authority can no longer rely on flow control to guarantee a supply of waste for its disposal facilities.
Also yesterday, Standard & Poor's Corp. placed the Camden County, N.J., Pollution Control Financing Authority's solid waste revenue bonds on CreditWatch "with negative implications," leaving the authority's BBB-plus rating one step away from a potential downgrade.
The downgrade of the Pennsylvania authority's debt "reflects significant financial pressure" to subsidize recently reduced tipping fees of the authority's solid waste disposal system, which has been forced by a recent U.S. Supreme Court ruling to compete with other systems without flow control, Standard & Poor's said.
The downgrade of the Series 1988, 1988A, 1991A, and taxable 1991B bonds also reflects long-term competitive pressures to maintain current waste flow, the rating agency said.
The Lancaster authority recently reduced its system tipping fee of $69 per ton, the highest fee in the south central region of the state, to $59 per ton. In addition, the authority offered an additional $6 per ton rebate to the state's top six private haulers, which deliver 60% of the authority's waste supply, Standard & Poor's said.
The authority made the pricing moves to secure the delivery of waste tonnage in anticipation that it would lose the ability to force the haulers to deliver waste under flow control.
The authority is expected to absorb a $4 million loss this year and $5 million next year as a result of the price reductions from its $10 million of cash on hand, Standard & Poor's said.
However, this is an interim measure, and the authority faces greater financial pressures in the long term, including higher fixed costs and an increase in annual debt service payments from $18.2 million in 1995 to $23.4 million in 1996, the rating agency said.
The Camden County rating applies to $171.3 million of solid waste disposal and resource recovery system revenue bonds, series 1991A-D.
The CreditWatch action came on the heels of a request by a Camden County borough that the U.S. District Court for the District of New Jersey issue a temporary restraining order against state and county enforcement of waste flow control regulations The regulations allow them to dictate where garbage is to be sent for disposal.
Haddon Heights, which made the June 2 request, is required to dispose of its trash at Camden County facilities under the regulations.
The district court denied the ruling, but the financing authority said it anticipates that the borough will appeal it.
"If the borough is successful in overturning waste flow control, either through the temporary restraining order or an adjudicated decision, this could severely impact the [financing authority's] ability to control its waste flow and result in a below investment grade rating," Standard & Poor's said in a statement yesterday.
The borough made the request in response to the U.S. Supreme Court's May 16 ruling in C&A Carbone v. Clarkstown, N.Y., which struck down state and local flow control laws.
The New Jersey Department of Environmental Protection notified trash haulers after the Carbone ruling that they still must comply with local flow control requirements in the state.
New Jersey regulates solid waste systems as public utilities that operate in state-granted franchises to local governments. Franchise holders such as Camden County are expected to defend their authority to control waste flow on the basis that they own a property interest in the waste under the franchise.
The Camden authority relies solely on flow control to guarantee a waste stream that would generate revenue to pay debt service on the bonds, Standard & Poor's said. In addition, the authority's tipping, or disposal, fees are much higher than fees charged to haulers by disposal facilities in the nearby Philadelphia area, the rating agency said.
The authority's $90.77 per ton system tipping fee is about 30% higher than the Pennsylvania facilities, which are only 20 miles away, the rating agency said.
If the court denies the borough's appeal, the borough plans to press its legal challenge of flow control requirements on the basis that they violate the commerce clause of the Constitution, which prohibits states from erecting barriers to interstate commerce.
The Camden authority expects additional municipalities to join in the action. The authority is pursuing federal legislation to overturn the Supreme Court ruling, said John Londres, deputy director of the authority.
The authority also is seeking state legislation that would allow it to "move to some sort of ... subsidy" that would enable its solid waste system to stay competitive, Londres said. However, how such a subsidy would be structured is unclear, he said.
"We are going to do everything we can to remain competitive," Londres said. It is largely a matter "of waiting for the court and Congress to act," he said.
Standard & Poor's said it is not placing on CreditWatch the only other solid waste system it rates in the state, the Union County Utility Authority, because it has competitive rates. The authority, which has a bond rating of A-minus with a stable outlook, has a tipping fee of $74 per ton, the lowest in the state, the rating agency said. "While this advantage is not absolute, the lower rate is likely to reduce the incentive for waste bypass," it said.
The rating agency's action against the Camden County financing authority does not affect $38.8 million of outstanding bonds in the county, Standard & Poor's said. The A-minus rating still stands on the Camden County Improvement Authority's $34 million of outstanding bonds guaranteed by the county - including $17.3 million payable by the Camden financing authority - and the county's $4.8 million of outstanding general obligation bonds, the rating agency said.
"In the event the county was required to assume the debt service on these bonds, these costs would represent a small portion of the county's overall debt profile and fund expenditures," Standard & Poor's said.
