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Financial Assurance for Municipal Solid Waste Landfills

Solid waste landfill

All owners/operators of municipal solid waste landfills (MSWLFs) are required to demonstrate that they will be able to pay for the required closure and post-closure care activities, and any corrective action that might become necessary due to releases of contaminants into the surrounding environment. EPA believes that requiring these financial assurance demonstrations ensures proper long term financial planning by owner/operators so that sites will be closed properly and maintained and monitored in a manner that protects human health and the environment. State and federal government entities are exempt from these requirements.

The first step in demonstrating financial assurance is preparing a written, site-specific cost estimate. Closure and post-closure care cost estimates are prepared prior to commencement of facility operations and must be adjusted annually during the active life of the unit/facility to account for inflation. Corrective action cost estimates are prepared when a release is detected, and also must be adjusted annually during the period of the correction action. All cost estimates are calculated based upon hiring a third party to perform the required action.

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Financial Assurance Mechanisms

There are several allowable financial assurance mechanisms described in the regulations (see 40 CFR §258.74) that an owner/operator may use alone, or in combination, to demonstrate that they meet the closure and post-closure care financial assurance requirements. The allowable mechanisms are:

Trust Fund (§258.74(a)) - An owner/operator may establish a trust fund into which he deposits money specifically earmarked for closure, post-closure care, and/or corrective action. The owner/operator must make annual payments into the trust fund for a specified period of time, referred to as the “pay-in period.”

Surety Bond Guaranteeing Payment or Performance (§258.74(b)) - An owner/operator may obtain a payment or performance surety bond from a surety company that guarantees that the owner/operator will pay for or perform all required closure and post-closure care. For corrective action, an owner/operator may obtain a performance bond only. If the owner/operator fails to meet the requirements specified in the bond, the surety company assumes liability and must pay for, or perform all, the required activities specified in the bond. When using a surety bond to demonstrate financial assurance, the owner/operator also must establish a standby trust fund, into which the surety company will make payments if the owner/operate fails to comply with its financial responsibilities.

Letter of Credit (§258.74(c)) - An owner/operator may obtain an irrevocable standby letter of credit from an institution that has the authority to issue such letters and whose operations are regulated and examined by a federal or state agency. The letter of credit must be equal to the amount of the current cost estimate for closure, post-closure care, and/or corrective action.

Insurance (§258.74(d)) - An owner/operator may obtain an insurance policy for a face value amount (the total amount the insurer is obligated to pay under the policy), at least equal to the cost estimate for closure and/or post-closure expenses. The insurance policy must guarantee that required funds will be available to close the unit and/or provide the required post-closure care at the appropriate time. Insurance is not an allowable mechanism for demonstrating financial assurance for corrective action—financial assurance for corrective action is not required until a release has been detected, and insurers will not issue a policy to cover an event which has already occurred.

Corporate Financial Test (§258.74(e)) - An owner/operator can meet the financial assurance requirements by passing a financial test to demonstrate and document that they have sufficient assets to cover closure, post-closure care, and/or corrective action costs. Specifically, the owner/operator's tangible net worth must be greater than the sum of the current closure, post-closure care, and/or corrective action cost estimates test plus $10 million; they must have assets located in the United States amounting to at least the sum of current closure, post-closure care, and/or corrective action cost estimates; and they must satisfy one of the following three conditions:

  1. A current rating for its senior unsubordinated debt of AAA, AA, A, or BBB as issued by Standard and Poor's, or Aaa, Aa, A or Baa as issued by Moody's.
  2. A ratio of less than 1.5 comparing total liabilities to net worth.
  3. A ratio of greater than 0.10 comparing the sum of net income plus depreciation, depletion, and amortization, minus $10 million, to total liabilities.

Local Government Financial Test (§258.74(f)) - If the owner/operator of the MSWLF is a local government, it may use the local government financial test to demonstrate closure, post-closure care, and/or corrective action financial assurance. To make this demonstration, a local government must satisfy either the bond rating requirement or the financial ratio alternative. The bond requirement requires the government to have an investment grade bond rating (i.e., AAA, AA, A, or BBB as issued by Standard and Poor's, or Aaa, Aa, A or Baa as issued by Moody's) on all outstanding general obligation bonds. The financial ratio alternative requires the government not have any outstanding general obligation bonds or only have unrated general obligation bonds, has a ratio of cash plus marketable securities to total expenditures greater than or equal to 0.05, and has a ratio of annual debt service to total expenditures less than or equal to 0.20. In determining these ratios, the government must use Generally Accepted Accounting Principles (GAAP) for governments, and have its financial statements audited by an independent certified public accountant. A government is not eligible to use this mechanism if it is currently in default on any outstanding general obligation bond; has any outstanding general obligation bonds rated lower than BBB as issued by Standard and Poor's or Baa as issued by Moody's; operated at a deficit equal to five percent or more of total annual revenue in each of the previous two fiscal years; or received an adverse opinion, disclaimer of opinion, or other qualified opinion from the independent certified public accountant auditing its financial statements.

Corporate Guarantee (§258.74(g)) - An owner/operator may obtain a written guarantee from another company (the guarantor) to meet the closure, post-closure care, and/or corrective action financial assurance requirements. The guarantor must be either the parent corporation or principal shareholder of the owner/operator (i.e., a corporate parent or grandparent), a company whose parent company is also the parent company of the owner/operator (i.e., a corporate sibling), or another related or nonrelated company with a “substantial business relationship” with the owner/operator (including subsidiaries of the owner/operator). The guarantor also must meet the conditions of the corporate financial test described above. With a corporate guarantee, the guarantor promises to pay for or perform the required activities on behalf of the owner/operator if the owner/operator fails to meet its obligations.

Local Government Guarantee (§258.74(h)) - An owner/operator may demonstrate closure, post-closure care, and/or corrective action financial assurance by securing a written guarantee from a local government. To issue such a guarantee, the local government (the guarantor) must meet the requirements of the local government financial test described above. In the guarantee, the local government promises to pay for or perform the required closure, post-closure, and/or corrective action if the owner/operator fails to do so.

State-Approved Mechanism (§258.74(i)) - States that are authorized to implement the MSWLF criteria may designate and approve any other mechanism that an owner/operator may use to demonstrate financial assurance.

State Assumption of Responsibility (§258.74(j)) - A state also may assume legal responsibility for a MSWLF's closure, post-closure care, and/or corrective action expenses or assure that the required funds will be available from state sources to cover all expenses.

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Federal Register Final Rules

Financial Assurance Mechanisms for Corporate Owners and Operators of Municipal Solid Waste Landfill Facilities; Final Rule. 63 FR 17706; April 10, 1998. Expands the allowable mechanisms for demonstrating financial assurance by adding the Corporate Financial Test (§258.74(e)) and the Corporate Guarantee (§258.74(g)).

Financial Assurance Mechanisms for Local Government Owners and Operators of Municipal Solid Waste Landfill Facilities; Final Rule (PDF) (13 pp, 83 K) 61 FR 60328; November 27, 1996. Expands the allowable mechanisms for demonstrating financial assurance by adding the Local Government Financial Test (§258.74(f)) and the Local Government Guarantee (§258.74(h)).

Solid Waste Disposal Facility Criteria; Final Rule. 56 FR 50978; October 9, 1991. Establishes and describes the financial assurance requirements and allowable mechanism for demonstrating financial assurance. (Currently not available online.)

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Other Resources

RCRA Training Module Introduction to Municipal Solid Waste Disposal Facility Criteria (PDF) (27 pp, 123 K) (EPA530-K-05-015) Introduces all of the design and operation criteria for MSWLFs, including details on the financial assurance requirements.

RCRA Orientation Manual: Chapter 2. Managing Nonhazardous Waste (PDF) (14 pp, 331 K) Includes information on the regulations for municipal solid waste landfills.

Criteria for Solid Waste Disposal Facilities: A Guide for Owners/Operators (PDF) (22 pp, 2.3MB)
This booklet, written primarily for owners/operators of municipal solid waste landfills, summarizes the federal municipal solid waste landfill regulations.

Safer Disposal for Solid Waste: The Federal Regulations for Landfills (PDF) (18 pp, 624K)
This booklet helps citizens understand the federal regulations for municipal solid waste landfills.

RCRA Online Database Indexes thousands of letters, memoranda, publications, and questions and answers issued by EPA's Office of Resource Conservation and Recovery (ORCR). These documents represent EPA Headquarters interpretations of the RCRA regulations governing the management of solid, hazardous, and medical waste.

RCRA FAQ Database Enables users to search frequently asked questions, or submit their own question/comment on a variety of RCRA issues and topics.

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