Title of Regulation: 9VAC20-70. Financial Assurance Regulations for Solid Waste Disposal, Transfer and Treatment Facilities (amending 9VAC20-70-210).

Statutory Authority: §§ 10.1-1402 and 10.1-1410 of the Code of Virginia; 40 CFR Part 258.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: July 17, 2013.

Effective Date: August 1, 2013.

Agency Contact: Debra A. Harris, Department of Environmental Quality, P.O. Box 1105, Richmond, VA 23218, telephone (804) 698-4206, FAX (804) 698-4346, TTY (804) 698-4021, or email debra.harris@deq.virginia.gov.

Basis: Section 10.1-1402 of the Code of Virginia authorizes the Virginia Waste Management Board to promulgate and enforce regulations necessary to carry out its powers and duties and the intent of the chapter and federal law. Specifically, § 10.1-1410 of the Code of Virginia authorizes the board to promulgate regulations that ensure that, if a solid waste treatment, transfer, or disposal facility is abandoned, the costs associated with protecting the public health and safety from the consequences of such abandonment may be recovered from the person abandoning the facility.

Purpose: The rationale for this regulatory action is to provide clarity and simplify the financial test requirements for local governments. Under the current requirements, local governments most provide an additional financial assurance mechanism in order to use the financial test to ensure the closure, post-closure care, and corrective action costs for their solid waste management facilities if those costs are over 20% but less than 43% of their total annual revenue. This amendment will allow the use of the financial test for demonstrating financial assurance under 9VAC20-70 for costs up to 43% of the total annual revenue, as is required under the federal regulations. Currently, only a few localities are required to meet this additional requirement, and it was considered overly burdensome as it tied up funds that could be otherwise allocated for local government use.

Rationale for Using Fast-Track Process: Currently, local governments most provide an additional financial assurance mechanism in order to use the financial test to assure the closure, post-closure care, and corrective action costs for their solid waste management facilities if those costs are over 20% but less than 43% of their total annual revenue. This amendment removes this burdensome requirement on some local governments, mostly smaller/rural counties, that must provide this additional financial assurance mechanism, which is not required under the analogous federal regulations. As all local governments will now be required to meet the same criteria when using the financial test option for financial assurance and as there has been no change in the requirement to provide financial assurance for their solid waste management facilities subject to this regulation, use of the fast-track process is deemed appropriate as this amendment is expected to be noncontroversial and will provide a benefit to smaller local government entities.

Substance: The requirements for the additional financial mechanism for costs exceeding 20% have been removed from the local government financial test section in 9VAC20-70-210.

Issues: The public will benefit as these amendments will not tie up local government revenue in an additional financial assurance mechanism for environmental liabilities over 20% of their total annual revenue when a financial test is used under 9VAC20-70. There is no disadvantage to the agency or the Commonwealth that will result from the adoption of these amendments to 9VAC20-70.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Virginia Waste Management Board (Board) proposes to amend its financial assurance regulations so that local governments do not have to provide an additional form of financial assurance if their environmental liabilities (closure, post closure or corrective costs for landfills, treatment facilities, etc.) are greater than 20% of the locality's revenues but less than or equal to 43% of their revenues.

Result of Analysis. Benefits likely outweigh costs for this proposed action.

Estimated Economic Impact. Currently, Virginia regulations, as well as federal rules, allow local governments that meet certain financial requirements (9VAC20-70-210 - Local government financial test) to use their sound financial position to assure that they will be able to pay for their environmental liabilities as they come due so long as those environmental liabilities are not greater than 43% of their revenues each year. Virginia additionally requires localities with environmental liabilities that are greater than 20% (but are less than or equal to 43%) of a locality's revenues to provide some other tangible financial assurance that the locality will be able to meet its obligations. A locality may currently meet this additional requirement by establishing either:

1) A restricted sinking fund,

2) An escrow account managed by a third party escrow agent or

3) A letter of credit.

The Department of Environmental Quality (DEQ) reports that this additional requirement is more stringent than the federal requirement. DEQ further reports that only a few localities are currently required to provide the additional assurance and that the Board considers the requirement for the additional assurance to be overly burdensome. Consequently, the Board now proposes to eliminate this additional requirement and allow localities to use the local government financial test to assure that they can meet their financial obligations.

Affected localities will benefit from this change as they will no longer have funds tied up in the additional financial assurance and can use those funds to meet other budget obligations. Since only localities that are in sound financial shape will pass the financial test in these regulations, the probability that citizens of these localities will suffer some harm from environmental issues that the locality is unable to afford fixing, and that they would have been able to fix with the additional assurance, is likely low. The benefits of this proposed regulatory change likely outweigh its costs.

Businesses and Entities Affected. DEQ reports that this regulatory change will potentially affect all local governments in Virginia.

Localities Particularly Affected. Localities whose environmental liabilities are currently greater than 20%, but less than or equal to 43%, of their annual revenue will benefit from this regulatory action.

Projected Impact on Employment. This regulatory action will likely have little to no impact on employment in the Commonwealth.

Effects on the Use and Value of Private Property. This regulatory action will likely have little to no effect on the use or value of private property in the Commonwealth.

Small Businesses: Costs and Other Effects. This proposed regulatory change does not affect any private business.

Small Businesses: Alternative Method that Minimizes Adverse Impact. This proposed regulatory change does not affect any private business.

Real Estate Development Costs. This regulatory action will likely have no effect on real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency's Response to Economic Impact Analysis: The department has reviewed the economic impact analysis prepared by the Department of Planning and Budget and has no comment.

Summary:

The amendment allows local governments to use certain financial tests to ensure environmental costs for solid waste management facilities up to 43% of the total annual revenue without submission of an additional mechanism to cover any amount over 20% of revenues.

9VAC20-70-210. Local government financial test.

An owner or operator that satisfies the requirements of subdivisions 1 through 3 of this section may demonstrate financial assurance using the local government financial test up to the amount specified in subdivision 4 of this section.

1. Financial component.

a. The owner or operator shall satisfy the provisions of subdivision 1 a of this section, as applicable:

(1) If the owner or operator has outstanding, rated, general obligation bonds that are not secured by insurance, a letter of credit, or other collateral or guarantee, he shall supply the director with documentation demonstrating that the owner or operator has a current rating of Aaa, Aa, A, or Baa, as issued by Moody's, or AAA, AA, A, or BBB, as issued by Standard and Poor's on all such general obligation bonds; or

(2) If the owner or operator does not have outstanding, rated general obligation bonds, he shall satisfy each of the following financial ratios based on the owner's or operator's most recent audited annual financial statement:

(a) A ratio of cash plus marketable securities to total expenditures greater than or equal to 0.05; and

(b) A ratio of annual debt service to total expenditures less than or equal to 0.20.

b. The owner or operator shall prepare his financial statements in conformity with Generally Accepted Accounting Principles for governments and have its financial statements audited by an independent certified public accountant or by the Auditor of Public Accounts.

c. An owner or operator is not eligible to assure its obligations under this section if he:

(1) Is currently in default on any outstanding general obligation bonds;

(2) Has any outstanding general obligation bonds rated lower than Baa as issued by Moody's or BBB as issued by Standard and Poor's;

(3) Operated at a deficit equal to 5.0% or more of total annual revenue in each of the past two fiscal years; or

(4) Receives an adverse opinion, disclaimer of opinion, or other qualified opinion from the independent certified public accountant or Auditor of Public Accounts auditing its financial statement as required under subdivision 1 b of this section. However, the director may evaluate qualified opinions on a case-by-case basis and allow use of the financial test in cases where the director deems the qualification insufficient to warrant disallowance of the test.

2. Public notice component. The local government owner or operator shall place a reference to the closure, post-closure care, or corrective action costs assured through the financial test into the next comprehensive annual financial report (CAFR) after January 7, 1998, or prior to the initial receipt of waste at the facility, whichever is later. Disclosure shall include the nature and source of closure and post-closure requirements, the reported liability at the balance sheet date, the estimated total closure and post-closure care cost remaining to be recognized, the percentage of landfill capacity used to date, and the estimated landfill life in years. A reference to corrective action cost shall be placed in CAFR no later than 120 days after the corrective action remedy has been selected in accordance with 9VAC20-81-260. For the first year the financial test is used to assure costs at a particular facility, the reference may instead be placed in the operating record until issuance of the next available CAFR if timing does not permit the reference to be incorporated into the most recently issued CAFR or budget. For closure and post-closure care costs, conformance with Government Accounting Standards Board Statement 18 assures compliance with this public notice component.

3. Recordkeeping and reporting requirements.

a. The local government owner or operator must submit to the department the following items and place copies of the items in the facility's operating record:

(1) An original letter signed by the local government's chief financial officer worded as specified in 9VAC20-70-290 G;

(2) The local government's independently audited year-end financial statements for the latest fiscal year, including the unqualified opinion of the auditor who must be an independent, certified public accountant or an appropriate state agency that conducts equivalent comprehensive audits;

(3) A report to the local government from the local government's independent certified public accountant (CPA) or the Auditor of Public Accounts based on performing an agreed upon procedures engagement relative to the financial ratios required by subdivision 1 a (3) 1 a (2) of this section, if applicable, and the requirements of subdivisions 1 b, 1 c (3) and 1 c (4) of this section. The CPA or state agency's report shall state the procedures performed and the CPA or state agency's findings;

(4) A copy of the comprehensive annual financial report (CAFR) used to comply with subdivision 2 of this section or certification that the requirements of General Accounting Standards Board Statement 18 have been met;

(5) A certification from the local government's chief executive officer stating in detail the method selected by the local government for funding closure and post-closure costs. If the method selected by the local government is a trust fund, escrow account or similar mechanism, there shall be included a certification from the local government's chief financial officer indicating the current reserve obligated to closure and post-closure care cost. If the method selected by local governments is the use of annual operating budget and Capital Investment Funds, there shall be a certification from the local government's chief financial officer so indicating. Nothing herein shall be construed to prohibit the local government from revising its plan for funding closure and post-closure care costs if such revision provides economic benefit to the local government and if such revision provides adequate means for funding closure and post-closure care cost. This certification shall be worded as specified in 9VAC20-70-290 H; and

(6) If the local government is required under this section to fund a restricted sinking fund, escrow account, or to obtain an irrevocable letter of credit, an original letter signed by the local government's chief financial officer and worded as specified in 9VAC20-70-290 I must be submitted.

b. The items required in subdivision 3 a of this section shall be submitted to the department and placed in the facility operating record as follows:

(1) In the case of closure and post-closure care, either before January 7, 1998, or prior to the initial receipt of waste at the facility, whichever is later; or

(2) In the case of corrective action, not later than 120 days after the corrective action remedy is selected in accordance with the requirements of 9VAC20-81-260.

c. After the initial submission of the items, the local government owner or operator must update the information, place a copy of the updated information in the operating record, and submit the updated documentation described in subdivisions 3 a (1) through (6) of this section to the department within 180 days following the close of the owner or operator's fiscal year.

d. The local government owner or operator is no longer required to meet the requirements of subdivision 3 of this section when:

(1) The owner or operator substitutes alternate financial assurance as specified in this section; or

(2) The owner or operator is released from the requirements of this section in accordance with 9VAC20-70-111 E, 9VAC20-70-112 B, or 9VAC20-70-113 C.

e. A local government shall satisfy the requirements of the financial test at the close of each fiscal year. If the local government owner or operator no longer meets the requirements of the local government financial test it must, within 210 days following the close of the owner or operator's fiscal year, obtain alternative financial assurance that meets the requirements of this section, place a copy of the financial assurance mechanism in the operating record, and submit the original financial assurance mechanism to the director.

f. The director, based on a reasonable belief that the local government owner or operator may no longer meet the requirements of the local government financial test, may require additional reports of financial condition from the local government at any time. If the director finds, on the basis of such reports or other information, that the owner or operator no longer meets the requirements of the local government financial test, the local government shall provide alternate financial assurance in accordance with this article.

4. Calculation of costs to be assured. The portion of the closure, post-closure, and corrective action costs for which an owner or operator can assure under subdivision 1 of this section is determined as follows:

a. If the local government owner or operator does not assure other environmental obligations through a financial test, it may assure closure, post-closure, and corrective action costs that equal up to 43% of the local government's total annual revenue or the sum of total revenues of constituent governments in the case of regional authorities. If the local government assures closure, post-closure, and corrective action costs that exceed 20% (but do not exceed 43%) of the local government's total annual revenue or the sum of the revenue of constituent governments in the case of regional authorities, the locality must also establish one of the following:

(1) A restricted sinking fund for the purpose of funding closure of the facility;

(2) An escrow account managed by a third party escrow agent for the purpose of funding closure of the facility; or

(3) A letter of credit for the purpose of funding closure of the facility.

The funding of the restricted sinking fund, escrow account, or letter of credit shall be determined by the following formula:

((CE*CD)-E) where CE is the current closure cost estimate, CD is the percent of the landfill capacity used to date, and E is the current year expenses for closure.

b. If the local government assures other environmental obligations through a financial test, including those associated with UIC facilities under 40 CFR 144.62, petroleum underground storage tank facilities under 9VAC25-590-10 et seq., PCB storage facilities under 40 CFR Part 761, and hazardous waste treatment, storage, and disposal facilities under Part IX or X of the Virginia Hazardous Waste Management Regulations (9VAC20-60), it shall add those costs to the closure, post-closure, and corrective action costs it seeks to assure under subdivision 1 of this section. The total shall not exceed 43% of the local government's total annual revenue. If the local government's total environmental liabilities assured through financial tests exceed 20% (but do not exceed 43%) of the local government's total annual revenue or the sum of the revenue of constituent governments in the case of regional authorities, the locality must also establish one of the following:

(1) A restricted sinking fund for the purpose of funding closure of the facility;

(2) An escrow account managed by a third party escrow agent for the purpose of funding closure of the facility; or

(3) A letter of credit for the purpose of funding closure of the facility.

The funding of the restricted sinking fund, escrow account, or letter of credit shall be determined by the following formula:

((CE*CD)-E) where CE is the current closure cost estimate, CD is the percent of the landfill capacity used to date, and E is the current year expenses for closure.

c. The owner or operator shall obtain an alternate financial assurance mechanism for those costs that exceed the limits set in subdivisions 4 a and 4 b of this section.