CHICAGO -- Lack of control over the flow of garbage as a result of a U.S. Supreme Court decision earlier this year has contributed to the shutdown of bond-financed waste incinerators in two Ohio cities.
Municipal market observers said the closing of city plants by Columbus and Akron is the first such action they are aware of since a May 16 Supreme Court ruling in C&A Carbone vs. Clarkstown, N. Y., struck down local flow control ordinances.
"This is the biggest development I've heard of since the Carbone decision," said Michael Decker, director of policy analysis at the Public Securities Association. "I think a development like this brings home the effects of the Supreme Court decision and is very much a vision of what can happen in the future."
The ruling called into question the security of debt issued to finance waste disposal and recycling facilities because the facilities have typically relied solely or in part on flow control to guarantee a waste stream to generate revenues to pay debt service on bonds. The problem was compounded last month when Congress failed to enact legislation that would have grandfathered existing flow control laws and contracts.
The PSA has estimated that between $12 billion and $18 billion of outstanding bonds are at risk without flow control.
While Columbus and Akron appear to be the first governments to shut down their waste facilities and to cite the lack of flow control as a major reason, neither city expects to have any problem paying off the outstanding debt issued for the facilities.
Columbus has about $117 million of GO bonds and about $59 million of variable-rate revenue bonds backed by a letter of credit from Dai-Ichi Kangyo Bank outstanding, according to city auditor Hugh Dorrian.
The debt was issued during the 1980s to build an incinerator that opened in late 1983. Some of that debt was advance refunded in 1986 and 1992. Last week, the Solid Waste Authority of Central Ohio, which has leased the incinerator from the city since April 1993, voted in shut down the facility. Lease payments from the authority were used by the city to pay debt service on the bonds.
Dorrian said the loss of flow control combined with about $65 million of improvements that would be needed to bring the facility into compliance with U.S. Environmental Protection Agency emission standards were the reasons for the shutdown.
"The plant became uneconomical to operate," be said.
Even without the incinerator, Dorrian said Columbus will have no problem paying 0ffthe debt. He said the authority Will still be obligated to make lease payments from revenues it collects for disposing waste in landfills it owns. If those revenues are insufficient to make the approximately $18 million of debt service payments a year, he said the city is prepared to fill in the gap. In addition the revenue bonds are secured with a first lien on revenues from the city's entire division of electricity. Also, the incinerator may be sold or retooled, Dorrian said, and any money generated from that would be used to reduce the debt.
"This central Ohio economy is just having one of the best years ever and we'll probably end this year in a strong financial position," he said. "The city of Columbus is probably the only city in the nation that could go through an experience like this without experiencing a negative impact on its debt."
Akron officials also expressed confidence that the approximately $7 million of GO bonds outstanding for its recycled energy plant will be paid off.
Rick Merolla, Akron's finance director, said the 15-year-old facility has never been self-supporting to pay debt service or operating costs. He said the city will continue to pay off the debt using general fund revenues and should actually save some of the $1 million to $1.5 million annual operating subsidy it had been giving to the plant once it shuts down.
According to Linda Sowa, Akron's director of public service, the decision was made to close the plant early next year after garbage flow decreased 40% in the wake of the Supreme Court decision.
"Without flow control, the plant can't survive," she said.
The Akron plant was also facing a $20 million to $30 million bill to clean up its air emissions to comply with EPA standards, Sows added.
Officials at Standard & Poor's Corp. and Moody's Investors Service said that both Akron and Columbus should be able to handle the financial implications of the incinerator closings.
Diane Shea, associate legislative director for the National Association of Counties, said there could be other waste plants facing closure just like those in Akron and Columbus. She said that the plant shutdowns could help Congress to realize "how serious" the situation is without flow control.