WASHINGTON -- A divided Supreme Court yesterday struck down a town law dictating where garbage must be sent for disposal in a ruling financial analysts say could jeopardize the credit of solid waste facilities.
The broadly worded ruling throws the issue of waste flow control squarely into the lap of Congress, analysts and attorneys involved in the case said.
The 6-to-3 decision, C&A Carbone v. Clarkstown, N.Y., held that a Clarkstown ordinance requiring all non-hazardous waste within the town to be delivered to a designated transfer station for disposal -- even if cheaper alternatives are available -- illegally discriminates against interstate commerce.
Solid waste facilities typically have relied solely or in part on flow control to guarantee a waste stream to generate revenues for paying debt service on municipal bonds.
Moody's Investors Service "does not plan any immediate downgrades, though we have significant credit concerns," said Marie Pisecki, a vice president at Moody's.
As of May 1, Moody's has rated $8.48 billion of mostly tax-exempt bonds, excluding general obligation/unlimited tax debt, issued to finance solid waste disposal facilities. The total includes $6.09 billion associated with solid waste systems that have waste-to-energy plants, Pisecki said.
"The issuer response to the ruling is the key," Pisecki said. "There's going to be some tough management decisions that will need to be made."
Mark Ryan, a municipal finance director at Standard & Poor's Corp., said "there is a lot of solid waste debt that is potentially negatively affected." Standard & Poor's will evaluate solid waste systems on an individual basis under the board ruling, he said.
"Any issuer that relies solely on flow control for its economics will certainly be evaluated," said Janet Martin, senior vice president at Fitch Investors Service. She cautioned that "you have to look at the individual security features for each of the issuers and their flexibility in terms of changing the mechanism of the pricing structure, the tip fee, and actions they can take to become more economic."
The court held that because Clarkstown's ordinance deprives competitors, including out-of-state firms, of access to a local market for processing and disposing of waste, the law violates the Constitution's commerce clause. The clause prohibits states from erecting barriers to the free flow of trade across state lines without the express direction of Congress.
The court did not distinguish between local and out-of-state waste in concluding that flow control laws are illegal. The ruling means that even when a flow control ordinance covers only garbage generated within a locality, the ordinance is still unconstitutional, said Betty Jo Christian, an attorney for C&A Carbone Inc., the trash hauler and recycler that brought the case to court.
"While the immediate effect of the ordinance is to direct local transport of solid waste to a designated site within the local jurisdiction, its economic effects are interstate in reach," Justice Anthony Kennedy wrote for the majority.
"State and local governments may not use their regulatory power to favor local enterprises by prohibiting patronage of out-of-state competitors or their facilities," the court held.
Justice Sandra Day O'Connor filed a separate concurring opinion, and Justice David Souter was joined by Chief Justice William Rehnquist and Justice Harry Blackmun in a 22-page dissent that is more than twice as long as the majority opinion.
"Discrimination against interstate commerce in favor of local business or investment is per se invalid, save in a narrow class of cases in which the municipality can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest," the court's majority opinion said.
Numerous state and local interests told the court that they fall in this "narrow class" because their ability to control the flow of garbage within their borders is essential to public health and safety as landfill space disappears and environmental cleanup costs escalate.
The arguments "must be rejected absent the clearest showing that the unobstructed flow of interstate commerce itself is unable to solve the local problem," the court held.
Numerous nondiscriminatory alternatives are available to Clarkstown to ensure a waste stream, including lowering of tipping fees and subsidizing plants through general taxes or municipals bonds, the court said.
Carbone, which operated a recycling center in Clarkstown, sued the town because the ordinance required the company to deliver trash it already had sorted at its own facility within the town's borders to the designated transfer station. The Clarkstown facility was built under a 1989 consent decree with the state of New York at an estimated cost of $1.4 million.
A private contractor agree to build and operate the facility for five years and then sell it to the town for $1. During the five-year period, the town guaranteed a minimum waste flow of 120,000 tons a year, and the contractor charged a tipping fee of $81 per ton to accept the waste. The fee was above the market rate, and Carbone itself charged $70 a ton for providing the same disposal service, the court said.
Carbone, which shut down as a result to the litigation, received and processed waste from both in-state and out-of-state sources. The company will resume its business of sorting and recycling trash, selling recyclables to mostly out-of-state buyers, and shipping nonrecyclable trash to disposal facilities other than the Clarkstown plant, said Christian, the Carbone attorney.
An attorney for Clarkstown said further litigation may occur under Clarkstown's zoning law, which allows only the town's designated facility to operate as a transfer station. Carbone, when viewed under New York environmental regulation, would be deemed a transfer station and therefore in violation of the zoning law, said Richard Glickel, an attorney in West Nyack, N.Y.
"We are the only show in town by virtue of our zoning ordinance," Glickel said.
Christian said any town has the right to establish siting requirements for trash facilities, and "they can have reasonable health and safety laws as long as they apply equally to everybody. But I can't seen how [zoning] could ever justify a flow control law."
The court has placed the flow control ball in Congress' court, Glickel said. "I think they [Congress are going to have to do something. It's a lot of money that's been laid out to finance these types of projects, which local government is mandated to do" under the Resource Recovery and Conservation Act of 1976, he said.
In her concurring opinion, O'Connor addressed an argument by the National Association of Bond Lawyers that Congress already has expressly permitted flow control under the 1976 law governing waste disposal.
"It is within Congress' power to authorize local imposition of flow control," but it did not expressly do so under the 1976 law, O'Connor said "Should Congress revisit this area, and enact legislation providing a clear indication that it intends states and localities to implement flow control, we well, of course, defer to that legislative judgment." But until then, she said, the Clarkstown ordinance "cannot survive constitutional scrutiny."
House and Senate aides could not be reached for comment.